You just borrowed $400,000 in the form of a 25 year interest-only mortgage with monthly payments of $3,000 per month. The interest rate is 9% pa which is not expected to change.
You actually plan to pay more than the required interest payment. You plan to pay $3,300 in mortgage payments every month, which your mortgage lender allows. These extra payments will reduce the principal and the minimum interest payment required each month.
At the maturity of the mortgage, what will be the principal? That is, after the last (300th) interest payment of $3,300 in 25 years, how much will be owing on the mortgage?
Bonds X and Y are issued by different companies, but they both pay a semi-annual coupon of 10% pa and they have the same face value ($100), maturity (3 years) and yield (10%) as each other.
Which of the following statements is true?
Question 323 foreign exchange rate, monetary policy, American and European terms
The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting.
As expected, the RBA increases the policy rate by 25 basis points.
What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar will:
Question 577 inflation, real and nominal returns and cash flows
What is the present value of a real payment of $500 in 2 years? The nominal discount rate is 7% pa and the inflation rate is 4% pa.
Question 667 forward foreign exchange rate, foreign exchange rate, cross currency interest rate parity, no explanation
The Australian cash rate is expected to be 2% pa over the next one year, while the US cash rate is expected to be 0% pa, both given as nominal effective annual rates. The current exchange rate is 0.73 USD per AUD.
What is the implied 1 year USD per AUD forward foreign exchange rate?
A pig farmer in the US is worried about the price of hogs falling and wants to lock in a price now. In one year the pig farmer intends to sell 1,000,000 pounds of hogs. Luckily, one year CME lean hog futures expire on the exact day that he wishes to sell his pigs. The futures have a notional principal of 40,000 pounds (about 18 metric tons) and currently trade at a price of 63.85 cents per pound. The underlying lean hogs spot price is 77.15 cents per pound. The correlation between the futures price and the underlying hogs price is one and the standard deviations are both 4 cents per pound. The initial margin is USD1,500 and the maintenance margin is USD1,200 per futures contract.
Which of the below statements is NOT correct?
Question 889 cross currency interest rate parity, no explanation
Judging by the graph, in 2018 the USD short term interest rate set by the US Federal Reserve is higher than the JPY short term interest rate set by the Bank of Japan, which is higher than the EUR short term interest rate set by the European central bank.
At the latest date shown in 2018: ##r_{USD}>r_{JPY}>r_{EUR}##
Assume that each currency’s yield curve is flat at the latest date shown in 2018, so interest rates are expected to remain at their current level into the future.
Which of the following statements is NOT correct?
Over time you would expect the:
Use the below information to value a mature levered company with growing annual perpetual cash flows and a constant debt-to-assets ratio. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. The firm's debt funding comprises annual fixed coupon bonds that all have the same seniority and coupon rate. When these bonds mature, new bonds will be re-issued, and so on in perpetuity. The yield curve is flat.
| Data on a Levered Firm with Perpetual Cash Flows | ||
| Item abbreviation | Value | Item full name |
| ##\text{OFCF}_1## | $12.5m | Operating free cash flow at time 1 |
| ##\text{FFCF}_1 \text{ or }\text{CFFA}_1## | $14m | Firm free cash flow or cash flow from assets at time 1 |
| ##\text{EFCF}_1## | $11m | Equity free cash flow at time 1 |
| ##\text{BondCoupons}_1## | $1.2m | Bond coupons paid to debt holders at time 1 |
| ##g## | 2% pa | Growth rate of OFCF, FFCF, EFCF and Debt cash flow |
| ##\text{WACC}_\text{BeforeTax}## | 9% pa | Weighted average cost of capital before tax |
| ##\text{WACC}_\text{AfterTax}## | 8.25% pa | Weighted average cost of capital after tax |
| ##r_\text{D}## | 5% pa | Bond yield |
| ##r_\text{EL}## | 13% pa | Cost or required return of levered equity |
| ##D/V_L## | 50% pa | Debt to assets ratio, where the asset value includes tax shields |
| ##n_\text{shares}## | 1m | Number of shares |
| ##t_c## | 30% | Corporate tax rate |
Which of the following statements is NOT correct?