Government bonds currently have a return of 5% pa. A stock has an expected return of 6% pa and the market return is 7% pa. What is the beta of the stock?

Read the following financial statements and calculate the firm's free cash flow over the 2014 financial year.

UBar Corp | ||

Income Statement for | ||

year ending 30th June 2014 | ||

$m | ||

Sales | 293 | |

COGS | 200 | |

Rent expense | 15 | |

Gas expense | 8 | |

Depreciation | 10 | |

EBIT | 60 | |

Interest expense | 0 | |

Taxable income | 60 | |

Taxes | 18 | |

Net income | 42 | |

UBar Corp | ||

Balance Sheet | ||

as at 30th June | 2014 | 2013 |

$m | $m | |

Assets | ||

Cash | 30 | 29 |

Accounts receivable | 5 | 7 |

Pre-paid rent expense | 1 | 0 |

Inventory | 50 | 46 |

PPE | 290 | 300 |

Total assets | 376 | 382 |

Liabilities | ||

Trade payables | 20 | 18 |

Accrued gas expense | 3 | 2 |

Non-current liabilities | 0 | 0 |

Contributed equity | 212 | 212 |

Retained profits | 136 | 150 |

Asset revaluation reserve | 5 | 0 |

Total L and OE | 376 | 382 |

Note: all figures are given in millions of dollars ($m).

The firm's free cash flow over the 2014 financial year was:

Estimate the French bank Societe Generale's share price using a backward-looking price earnings (PE) multiples approach with the following assumptions and figures only. Note that EUR is the euro, the European monetary union's currency.

- The 4 major European banks Credit Agricole (ACA), Deutsche Bank AG (DBK), UniCredit (UCG) and Banco Santander (SAN) are comparable companies to Societe Generale (GLE);
- Societe Generale's (GLE's) historical earnings per share (EPS) is EUR 2.92;
- ACA's backward-looking PE ratio is 16.29 and historical EPS is EUR 0.84;
- DBK's backward-looking PE ratio is 25.01 and historical EPS is EUR 1.26;
- SAN's backward-looking PE ratio is 14.71 and historical EPS is EUR 0.47;
- UCG's backward-looking PE ratio is 15.78 and historical EPS is EUR 0.40;

Note: Figures sourced from Google Finance on 27 March 2015.

A **4.5**% fixed coupon Australian Government bond was issued at **par** in mid-**April 2009**. Coupons are paid **semi-annually** in arrears in mid-April and mid-October each year. The face value is $**1,000**. The bond will mature in mid-**April 2020**, so the bond had an original tenor of **11** years.

Today is mid-**September 2015** and similar bonds now yield **1.9**% pa.

What is the bond's new price? Note: there are 10 semi-annual coupon payments remaining from now (mid-September 2015) until maturity (mid-April 2020); both yields are given as APR's compounding semi-annually; assume that the yield curve was flat before the change in yields, and remained flat afterwards as well.

Use the below information to value a levered company with constant annual perpetual cash flows from assets. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. Both the cash flow from assets including and excluding interest tax shields are constant (but not equal to each other).

Data on a Levered Firm with Perpetual Cash Flows | ||

Item abbreviation | Value | Item full name |

##\text{CFFA}_\text{U}## | $100m | Cash flow from assets excluding interest tax shields (unlevered) |

##\text{CFFA}_\text{L}## | $112m | Cash flow from assets including interest tax shields (levered) |

##g## | 0% pa | Growth rate of cash flow from assets, levered and unlevered |

##\text{WACC}_\text{BeforeTax}## | 7% pa | Weighted average cost of capital before tax |

##\text{WACC}_\text{AfterTax}## | 6.25% pa | Weighted average cost of capital after tax |

##r_\text{D}## | 5% pa | Cost of debt |

##r_\text{EL}## | 9% pa | Cost of levered equity |

##D/V_L## | 50% pa | Debt to assets ratio, where the asset value includes tax shields |

##t_c## | 30% | Corporate tax rate |

What is the value of the levered firm including interest tax shields?

The market's expected total return is **10**% pa and the risk free rate is **5**% pa, both given as effective annual rates.

A stock has a beta of **0.5**.

In the last 5 minutes, the federal government unexpectedly raised taxes. Over this time the share market fell by **3**%. The risk free rate was unchanged.

What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute rate?

**Question 825** future, hedging, tailing the hedge, speculation, no explanation

An equity index fund manager controls a USD**500** million diversified equity portfolio with a beta of **0.9**. The equity manager expects a significant rally in equity prices next year. The market does not think that this will happen. If the fund manager wishes to increase his portfolio beta to **1.5**, how many S&P500 futures should he buy?

The US market equity index is the S&P500. One year CME futures on the S&P500 currently trade at **2,155** points and the spot price is **2,180** points. Each point is worth $**250**.

The number of one year S&P500 futures contracts that the fund manager should buy is:

Which of the following is **NOT** the Australian central bank’s responsibility?