**Question 108** bond pricing, zero coupon bond, term structure of interest rates, forward interest rate

An Australian company just issued two bonds:

- A 1 year zero coupon bond at a yield of 10% pa, and
- A 2 year zero coupon bond at a yield of 8% pa.

What is the forward rate on the company's debt from years 1 to 2? Give your answer as an APR compounding every 6 months, which is how the above bond yields are quoted.

On his 20th birthday, a man makes a resolution. He will deposit $**30** into a bank account at the **end** of every month starting from now, which is the start of the month. So the first payment will be in one month. He will write in his will that when he dies the money in the account should be given to charity.

The bank account pays interest at **6**% pa compounding **monthly**, which is not expected to change.

If the man lives for another **60** years, how much money will be in the bank account if he dies just after making his last (720th) payment?

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 547** PE ratio, Multiples valuation, DDM, income and capital returns, no explanation

A firm pays out all of its earnings as dividends. Because of this, the firm has no real growth in earnings, dividends or stock price since there is no re-investment back into the firm to buy new assets and make higher earnings. The dividend discount model is suitable to value this company.

The firm's revenues and costs are expected to increase by inflation in the foreseeable future. The firm has no debt. It operates in the services industry and has few physical assets so there is negligible depreciation expense and negligible net working capital required.

Which of the following statements about this firm's PE ratio is **NOT** correct? The PE ratio should:

Note: The inverse of x is 1/x.

The efficient markets hypothesis (EMH) and no-arbitrage pricing theory is most closely related to which of the following concepts?

Which of the following quantities is commonly assumed to be **normally** distributed?

The phone company Optus have 2 mobile service plans on offer which both have the same amount of phone call, text message and internet data credit. Both plans have a contract length of **24** months and the monthly cost is payable in **advance**. The only difference between the two plans is that one is a:

- 'Bring Your Own' (BYO) mobile service plan, costing $
**80**per month. There is no phone included in this plan. The other plan is a: - 'Bundled' mobile service plan that comes with the latest smart phone, costing $
**100**per month. This plan includes the latest smart phone.

Neither plan has any additional payments at the start or end. Assume that the discount rate is **1**% per month given as an effective monthly rate.

The only difference between the plans is the phone, so what is the implied cost of the phone as a present value? Given that the latest smart phone actually costs $**600** to purchase outright from another retailer, should you commit to the BYO plan or the bundled plan?

**Question 767** idiom, corporate financial decision theory, no explanation

The sayings "Don't cry over spilt milk", "Don't regret the things that you can't change" and "What's done is done" are most closely related to which financial concept?