For a price of $1040, Camille will sell you a share which just paid a dividend of $100, and is expected to pay dividends every year forever, growing at a rate of 5% pa.
So the next dividend will be ##100(1+0.05)^1=$105.00##, and the year after it will be ##100(1+0.05)^2=110.25## and so on.
The required return of the stock is 15% pa.
Question 48 IRR, NPV, bond pricing, premium par and discount bonds, market efficiency
The theory of fixed interest bond pricing is an application of the theory of Net Present Value (NPV). Also, a 'fairly priced' asset is not over- or under-priced. Buying or selling a fairly priced asset has an NPV of zero.
Considering this, which of the following statements is NOT correct?
Find Candys Corporation's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
Candys Corp | ||
Income Statement for | ||
year ending 30th June 2013 | ||
$m | ||
Sales | 200 | |
COGS | 50 | |
Operating expense | 10 | |
Depreciation | 20 | |
Interest expense | 10 | |
Income before tax | 110 | |
Tax at 30% | 33 | |
Net income | 77 | |
Candys Corp | ||
Balance Sheet | ||
as at 30th June | 2013 | 2012 |
$m | $m | |
Assets | ||
Current assets | 220 | 180 |
PPE | ||
Cost | 300 | 340 |
Accumul. depr. | 60 | 40 |
Carrying amount | 240 | 300 |
Total assets | 460 | 480 |
Liabilities | ||
Current liabilities | 175 | 190 |
Non-current liabilities | 135 | 130 |
Owners' equity | ||
Retained earnings | 50 | 60 |
Contributed equity | 100 | 100 |
Total L and OE | 460 | 480 |
Note: all figures are given in millions of dollars ($m).
Which one of the following bonds is trading at a discount?
Question 536 idiom, bond pricing, capital structure, leverage
The expression 'my word is my bond' is often used in everyday language to make a serious promise.
Why do you think this expression uses the metaphor of a bond rather than a share?
Question 723 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate
Here is a table of stock prices and returns. Which of the statements below the table is NOT correct?
Price and Return Population Statistics | ||||
Time | Prices | LGDR | GDR | NDR |
0 | 100 | |||
1 | 99 | -0.010050 | 0.990000 | -0.010000 |
2 | 180.40 | 0.600057 | 1.822222 | 0.822222 |
3 | 112.73 | 0.470181 | 0.624889 | 0.375111 |
Arithmetic average | 0.0399 | 1.1457 | 0.1457 | |
Arithmetic standard deviation | 0.4384 | 0.5011 | 0.5011 | |
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?
Question 852 gross domestic product, inflation, employment, no explanation
When the economy is booming (in an upswing), you tend to see:
A bank bill was bought for $99,000 and sold for $100,000 thirty (30) days later. There are 365 days in the year. Which of the following formulas gives the simple interest rate per annum over those 30 days?
Note: To help you identify which is the correct answer without doing any calculations yourself, the formulas used to calculate the numbers are given.
Question 984 principal agent problem, moral hazard, asymmetric information, no explanation
When does the ‘principal-agent problem’ occur? Is it when:
I. The principal has conflicting incentives (moral hazard);
II. The agent has conflicting incentives (moral hazard);
III. The principal has incomplete information about the agent (asymmetric information); or
IV. The agent has incomplete information about the principal (asymmetric information)?
The principal-agent problem occurs when statements: