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Question 81  risk, correlation, diversification

Stock A and B's returns have a correlation of 0.3. Which statement is NOT correct?



Question 134  fully amortising loan, APR

You want to buy an apartment worth $400,000. You have saved a deposit of $80,000. The bank has agreed to lend you the $320,000 as a fully amortising 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 348  PE ratio, Multiples valuation

Estimate the US bank JP Morgan's share price using a price earnings (PE) multiples approach with the following assumptions and figures only:

  • The major US banks JP Morgan Chase (JPM), Citi Group (C) and Wells Fargo (WFC) are comparable companies;
  • JP Morgan Chase's historical earnings per share (EPS) is $4.37;
  • Citi Group's share price is $50.05 and historical EPS is $4.26;
  • Wells Fargo's share price is $48.98 and historical EPS is $3.89.

Note: Figures sourced from Google Finance on 24 March 2014.



Question 502  NPV, IRR, mutually exclusive projects

An investor owns an empty block of land that has local government approval to be developed into a petrol station, car wash or car park. The council will only allow a single development so the projects are mutually exclusive.

All of the development projects have the same risk and the required return of each is 10% pa. Each project has an immediate cost and once construction is finished in one year the land and development will be sold. The table below shows the estimated costs payable now, expected sale prices in one year and the internal rates of returns (IRR's).

Mutually Exclusive Projects
Project Cost
now ($)
Sale price in
one year ($)
IRR
(% pa)
Petrol station 9,000,000 11,000,000 22.22
Car wash 800,000 1,100,000 37.50
Car park 70,000 110,000 57.14
 

Which project should the investor accept?



Question 568  rights issue, capital raising, capital structure

A company conducts a 1 for 5 rights issue at a subscription price of $7 when the pre-announcement stock price was $10. What is the percentage change in the stock price and the number of shares outstanding? The answers are given in the same order. Ignore all taxes, transaction costs and signalling effects.



Question 578  inflation, real and nominal returns and cash flows

Which of the following statements about inflation is NOT correct?



Question 601  foreign exchange rate, American and European terms

Australians usually quote the Australian dollar in USD per 1 AUD. For example, in October 2015 the Australian dollar was quoted as 0.72 USD per AUD. Is this an or terms quote?


Question 609  debt terminology

You deposit cash into your bank account. Have you or debt?


Question 913  bill pricing, money market

A 90 day bank bill has a face value of $100,000.

Investor A bought the bill when it was first issued at a simple yield to maturity of 3% pa and sold it 20 days later to Investor B who expected to earn a simple yield to maturity of 5% pa. Investor B held it until maturity.

Which of the following statements is NOT correct?



Question 940  CAPM, DDM

A stock has a beta of 1.2. Its next dividend is expected to be $20, paid one year from now.

Dividends are expected to be paid annually and grow by 1.5% pa forever.

Treasury bonds yield 3% pa and the market portfolio's expected return is 7% pa. All returns are effective annual rates.

What is the price of the stock now?




Copyright © 2014 Keith Woodward