Fight Finance

Courses  Tags  Random  All  Recent  Scores

Question 62  implicit interest rate in wholesale credit

A wholesale building supplies business offers credit to its customers. Customers are given 60 days to pay for their goods, but if they pay within 7 days they will get a 2% discount.

What is the effective interest rate implicit in the discount being offered?

Assume 365 days in a year and that all customers pay on either the 7th day or the 60th day. All rates given below are effective annual rates.



Question 128  debt terminology, needs refinement

An 'interest payment' is the same thing as a 'coupon payment'. or ?


Question 229  bond pricing

An investor bought two fixed-coupon bonds issued by the same company, a zero-coupon bond and a 7% pa semi-annual coupon bond. Both bonds have a face value of $1,000, mature in 10 years, and had a yield at the time of purchase of 8% pa.

A few years later, yields fell to 6% pa. Which of the following statements is correct? Note that a capital gain is an increase in price.



Question 351  CFFA

Over the next year, the management of an unlevered company plans to:

  • Achieve firm free cash flow (FFCF or CFFA) of $1m.
  • Pay dividends of $1.8m
  • Complete a $1.3m share buy-back.
  • Spend $0.8m on new buildings without buying or selling any other fixed assets. This capital expenditure is included in the CFFA figure quoted above.

Assume that:

  • All amounts are received and paid at the end of the year so you can ignore the time value of money.
  • The firm has sufficient retained profits to pay the dividend and complete the buy back.
  • The firm plans to run a very tight ship, with no excess cash above operating requirements currently or over the next year.

How much new equity financing will the company need? In other words, what is the value of new shares that will need to be issued?



Question 436  option, no explanation

Will the price of an out-of-the-money put option on equity or if the standard deviation of returns (risk) of the underlying shares becomes higher?


Question 669  beta, CAPM, risk

Which of the following is NOT a valid method for estimating the beta of a company's stock? Assume that markets are efficient, a long history of past data is available, the stock possesses idiosyncratic and market risk. The variances and standard deviations below denote total risks.



Question 718  arithmetic and geometric averages

The symbol ##\text{GDR}_{0\rightarrow 1}## represents a stock's gross discrete return per annum over the first year. ##\text{GDR}_{0\rightarrow 1} = P_1/P_0##. The subscript indicates the time period that the return is mentioned over. So for example, ##\text{AAGDR}_{1 \rightarrow 3}## is the arithmetic average GDR measured over the two year period from years 1 to 3, but it is expressed as a per annum rate.

Which of the below statements about the arithmetic and geometric average GDR is NOT correct?



Question 802  negative gearing, leverage, capital structure, no explanation

Which of the following statements about ‘negative gearing’ is NOT correct?



Question 953  option, out of the money option

If a call option is out-of-the-money, then the spot price (##S_0##) is than, than or to the call option's strike price (##K_T##)?


Question 976  comparative advantage in trade, production possibilities curve, no explanation

Arthur and Bindi are the only people on a remote island. Their production possibility curves are shown in the graph.

Which of the following statements is NOT correct?