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Question 76  CAPM, SML

Government bonds currently have a return of 5%. A stock has a beta of 2 and the market return is 7%. What is the expected return of the stock?



Question 176  CFFA

Why is Capital Expenditure (CapEx) subtracted in the Cash Flow From Assets (CFFA) formula?

###CFFA=NI+Depr-CapEx - \Delta NWC+IntExp###



Question 177  implicit interest rate in wholesale credit

A furniture distributor offers credit to its customers. Customers are given 25 days to pay for their goods, but if they pay immediately they will get a 1% discount.

What is the effective interest rate implicit in the discount being offered? Assume 365 days in a year and that all customers pay either immediately or on the 25th day. All rates given below are effective annual rates.



Question 212  rights issue

In mid 2009 the listed mining company Rio Tinto announced a 21-for-40 renounceable rights issue. Below is the chronology of events:

  • 04/06/2009. Share price opens at $69.00 and closes at $66.90.

  • 05/06/2009. 21-for-40 rights issue announced at a subscription price of $28.29.

  • 16/06/2009. Last day that shares trade cum-rights. Share price opens at $76.40 and closes at $75.50.

  • 17/06/2009. Shares trade ex-rights. Rights trading commences.

All things remaining equal, what would you expect Rio Tinto's stock price to open at on the first day that it trades ex-rights (17/6/2009)? Ignore the time value of money since time is negligibly short. Also ignore taxes.



Question 272  NPV

Suppose you had $100 in a savings account and the interest rate was 2% per year.

After 5 years, how much do you think you would have in the account if you left the money to grow?

than $102, $102 or than $102?


Question 331  DDM, income and capital returns

The following equation is the Dividend Discount Model, also known as the 'Gordon Growth Model' or the 'Perpetuity with growth' equation.

### p_0= \frac{c_1}{r-g} ###

Which expression is equal to the expected dividend return?



Question 673  CAPM, beta, expected and historical returns

A stock has a beta of 1.5. The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates.

In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market fell by 1%. 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 768  accounting terminology, book and market values, no explanation

Accountants and finance professionals have lots of names for the same things which can be quite confusing.

Which of the following groups of items are NOT synonyms?



Question 783  open interest, trade volume, future

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 2 futures from Bob.

2. Chris buys 3 futures from Delta.

3. Delta buys 5 futures from Alice.

Which of the following statements is NOT correct?



Question 854  speculation motive for keeping money, no explanation

What is the speculation motive for keeping money? The speculation motive encourages people to keep money available: