For a price of $10.20 each, Renee will sell you 100 shares. Each share is expected to pay dividends in perpetuity, growing at a rate of 5% pa. The next dividend is one year away (t=1) and is expected to be $1 per share.

The required return of the stock is 15% pa.

A stock is expected to pay the following dividends:

Cash Flows of a Stock | ||||||

Time (yrs) | 0 | 1 | 2 | 3 | 4 | ... |

Dividend ($) | 0.00 | 1.00 | 1.05 | 1.10 | 1.15 | ... |

After year 4, the annual dividend will grow in perpetuity at 5% pa, so;

- the dividend at t=5 will be $1.15(1+0.05),
- the dividend at t=6 will be $1.15(1+0.05)^2, and so on.

The required return on the stock is 10% pa. Both the growth rate and required return are given as effective annual rates. What is the current price of the stock?

You want to buy an apartment worth $300,000. You have saved a deposit of $60,000.

The bank has agreed to lend you $240,000 as an **interest only** mortgage loan with a term of 30 years. The interest rate is 6% pa and is not expected to change. What will be your monthly payments?

**Question 323** foreign exchange rate, monetary policy, American and European terms

The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting.

As expected, the RBA increases the policy rate by 25 basis points.

What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar will:

Many Australian home loans that are interest-only actually require payments to be made on a fully amortising basis after a number of years.

You decide to borrow $**600,000** from the bank at an interest rate of **4.25**% pa for 25 years. The payments will be **interest-only** for the first **10** years (t=0 to 10 years), then they will have to be paid on a **fully amortising** basis for the last **15** years (t=10 to 25 years).

Assuming that interest rates will remain constant, what will be your monthly payments over the first 10 years from now, and then the next 15 years after that? The answer options are given in the same order.

**Question 576** inflation, real and nominal returns and cash flows

What is the present value of a **nominal** payment of $1,000 in 4 years? The **nominal** discount rate is 8% pa and the inflation rate is 2% pa.

A trader **sells** one crude oil European style **call** option contract on the CME expiring in one year with an exercise price of $44 per barrel for a price of $6.64. The crude oil spot price is $40.33. If the trader doesn’t close out her contract before maturity, then at maturity she will have the:

A pig farmer in the US is worried about the price of hogs falling and wants to lock in a price now. In one year the pig farmer intends to sell **1,000,000** pounds of hogs. Luckily, one year CME lean hog futures expire on the exact day that he wishes to sell his pigs. The futures have a notional principal of **40,000** pounds (about 18 metric tons) and currently trade at a price of **63.85** cents per pound. The underlying lean hogs spot price is **77.15** cents per pound. The correlation between the futures price and the underlying hogs price is **one** and the standard deviations are both **4** cents per pound. The initial margin is USD**1,500** and the maintenance margin is USD**1,200** per futures contract.

Which of the below statements is **NOT** correct?

You just spent $**1,000** on your credit card. The interest rate is **24**% pa compounding **monthly**. Assume that your credit card account has no fees and no minimum monthly repayment.

If you can't make any interest or principal payments on your credit card debt over the next year, how much will you owe **one year** from now?

**Question 983** corporate financial decision theory, Du Pont formula, accounting ratio

A company manager is thinking about the firm's book assets-to-equity ratio, also called the 'equity multiplier' in the Du Pont formula:

###\text{Equity multiplier} = \dfrac{\text{Total Assets}}{\text{Owners' Equity}}###What's the name of the decision that the manager is thinking about? In other words, the assets-to-equity ratio is the main subject of what decision?

Note: Du Pont formula for analysing book return on equity:

###\begin{aligned} \text{ROE} &= \dfrac{\text{Net Profit}}{\text{Sales}} \times \dfrac{\text{Sales}}{\text{Total Assets}} \times \dfrac{\text{Total Assets}}{\text{Owners' Equity}} \\ &= \text{Net profit margin} \times \text{Total asset turnover} \times \text{Equity multiplier} \\ \end{aligned}###