A company issues a large amount of bonds to raise money for new projects of similar risk to the company's existing projects. The net present value (NPV) of the new projects is positive but small. Assume a classical tax system. Which statement is NOT correct?
A firm can issue 3 year annual coupon bonds at a yield of 10% pa and a coupon rate of 8% pa.
The beta of its levered equity is 2. The market's expected return is 10% pa and 3 year government bonds yield 6% pa with a coupon rate of 4% pa.
The market value of equity is $1 million and the market value of debt is $1 million. The corporate tax rate is 30%.
What is the firm's after-tax WACC? Assume a classical tax system.
A four year bond has a face value of $100, a yield of 6% and a fixed coupon rate of 12%, paid semi-annually. What is its price?
Which one of the following bonds is trading at a premium?
The cheapest mobile phones available tend to be those that are 'locked' into a cell phone operator's network. Locked phones can not be used with other cell phone operators' networks.
Locked mobile phones are cheaper than unlocked phones because the locked-in network operator helps create a monopoly by:
A fairly valued share's current price is $4 and it has a total required return of 30%. Dividends are paid annually and next year's dividend is expected to be $1. After that, dividends are expected to grow by 5% pa in perpetuity. All rates are effective annual returns.
What is the expected dividend income paid at the end of the second year (t=2) and what is the expected capital gain from just after the first dividend (t=1) to just after the second dividend (t=2)? The answers are given in the same order, the dividend and then the capital gain.
Question 526 real and nominal returns and cash flows, inflation, no explanation
How can a nominal cash flow be precisely converted into a real cash flow?
Which of the following quantities is commonly assumed to be normally distributed?
A non-dividend paying stock has a current price of $20.
The risk free rate is 5% pa given as a continuously compounded rate.
A 2 year futures contract on the stock has a futures price of $24.
You suspect that the futures contract is mis-priced and would like to conduct a risk-free arbitrage that requires zero capital. Which of the following steps about arbitraging the situation is NOT correct?