A manufacturing company is considering a new project in the more risky services industry. The cash flows from assets (CFFA) are estimated for the new project, with interest expense excluded from the calculations. To get the levered value of the project, what should these unlevered cash flows be discounted by?

Assume that the manufacturing firm has a target debt-to-assets ratio that it sticks to.

A five year bond has a face value of $100, a yield of 12% and a fixed coupon rate of 6%, paid semi-annually.

What is the bond's price?

**Question 315** foreign exchange rate, American and European terms

If the current AUD exchange rate is USD 0.9686 = AUD 1, what is the European terms quote of the AUD against the USD?

A fairly priced stock has an expected return equal to the market's. Treasury bonds yield 5% pa and the market portfolio's expected return is 10% pa. What is the stock's beta?

Estimate the US bank JP Morgan's share price using a price earnings (PE) multiples approach with the following assumptions and figures only:

- The major US banks JP Morgan Chase (JPM), Citi Group (C) and Wells Fargo (WFC) are comparable companies;
- JP Morgan Chase's historical earnings per share (EPS) is $
**4.37**; - Citi Group's share price is $
**50.05**and historical EPS is $**4.26**; - Wells Fargo's share price is $
**48.98**and historical EPS is $**3.89**.

Note: Figures sourced from Google Finance on 24 March 2014.

Which of the following decisions relates to the current assets and current liabilities of the firm?

**Question 568** rights issue, capital raising, capital structure

A company conducts a **1** for **5** rights issue at a subscription price of $**7** when the pre-announcement stock price was $**10**. What is the percentage change in the stock price and the number of shares outstanding? The answers are given in the same order. Ignore all taxes, transaction costs and signalling effects.

Alice, Bob, Chris and Delta are traders in the futures market. The following trades occur over a single day in a newly-opened equity index future that matures in one year which the exchange just made available.

1. Alice buys a future from Bob.

2. Chris buys a future from Delta.

3. Bob buys a future from Chris.

These were the only trades made in this equity index future. What was the trading volume and what is the open interest?

**Question 721** mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

Fred owns some Commonwealth Bank (CBA) shares. He has calculated CBA’s monthly returns for each month in the past 20 years using this formula:

###r_\text{t monthly}=\ln \left( \dfrac{P_t}{P_{t-1}} \right)###He then took the arithmetic average and found it to be **1**% per month using this formula:

He also found the standard deviation of these monthly returns which was **5**% per month:

Which of the below statements about Fred’s CBA shares is **NOT** correct? Assume that the past historical average return is the true population average of future expected returns.

**Question 784** boot strapping zero coupon yield, forward interest rate, term structure of interest rates

Information about three risk free Government bonds is given in the table below.

Federal Treasury Bond Data |
||||

Maturity |
Yield to maturity |
Coupon rate |
Face value |
Price |

(years) | (pa, compounding annually) | (pa, paid annually) | ($) | ($) |

1 | 0% | 2% | 100 | 102 |

2 | 1% | 2% | 100 | 101.9703951 |

3 | 2% | 2% | 100 | 100 |

Based on the above government bonds' yields to maturity, which of the below statements about the spot zero rates and forward zero rates is **NOT** correct?