Question 58 NPV, inflation, real and nominal returns and cash flows, Annuity
A project to build a toll bridge will take two years to complete, costing three payments of $100 million at the start of each year for the next three years, that is at t=0, 1 and 2.
After completion, the toll bridge will yield a constant $50 million at the end of each year for the next 10 years. So the first payment will be at t=3 and the last at t=12. After the last payment at t=12, the bridge will be given to the government.
The required return of the project is 21% pa given as an effective annual nominal rate.
All cash flows are real and the expected inflation rate is 10% pa given as an effective annual rate. Ignore taxes.
The Net Present Value is:
You want to buy an apartment worth $500,000. You have saved a deposit of $50,000. The bank has agreed to lend you the $450,000 as a fully amortising mortgage loan with a term of 25 years. The interest rate is 6% pa and is not expected to change.
What will be your monthly payments?
Question 147 bill pricing, simple interest rate, no explanation
A 30-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 8% pa and there are 365 days in the year. What is its price now?
Let the variance of returns for a share per month be ##\sigma_\text{monthly}^2##.
What is the formula for the variance of the share's returns per year ##(\sigma_\text{yearly}^2)##?
Assume that returns are independently and identically distributed (iid) so they have zero auto correlation, meaning that if the return was higher than average today, it does not indicate that the return tomorrow will be higher or lower than average.
Total cash flows can be broken into income and capital cash flows.
What is the name given to the cash flow generated from selling shares at a higher price than they were bought?
Below is the Australian federal government’s budget balance as a percent of GDP. Note that the columns to the right of the vertical black line were a forecast at the time. The x-axis shows financial years, so for example the 06/07 financial year represents the time period from 1 July 2006 to 30 June 2007.
Comparing the 2008/09 financial year to the previous one, the Australian federal government implemented:
Question 903 option, Black-Scholes-Merton option pricing, option on stock index
A six month European-style call option on the S&P500 stock index has a strike price of 2800 points.
The underlying S&P500 stock index currently trades at 2700 points, has a continuously compounded dividend yield of 2% pa and a standard deviation of continuously compounded returns of 25% pa.
The risk-free interest rate is 5% pa continuously compounded.
Use the Black-Scholes-Merton formula to calculate the option price. The call option price now is:
Question 959 negative gearing, leverage, capital structure, interest tax shield, real estate
Last year, two friends Gear and Nogear invested in residential apartments. Each invested $1 million of their own money (their net wealth).
Apartments cost $1,000,000 last year and they earned net rents of $30,000 pa over the last year. Net rents are calculated as rent revenues less the costs of renting such as property maintenance, land tax and council rates. However, interest expense and personal income taxes are not deducted from net rents.
Gear and Nogear funded their purchases in different ways:
- Gear used $1,000,000 of her own money and borrowed $4,000,000 from the bank in the form of an interest-only loan with an interest rate of 5% pa to buy 5 apartments.
- Nogear used $1,000,000 of his own money to buy one apartment. He has no mortgage loan on his property.
Both Gear and Nogear also work in high-paying jobs and are subject personal marginal tax rates of 45%.
Which of the below statements about the past year is NOT correct?