Fight Finance

What is the expected return of the above portfolio?

A zero coupon bond that matures in 6 months has a face value of $1,000.

The firm that issued this bond is trying to forecast its income statement for the year. It needs to calculate the interest expense of the bond this year.

The bond is highly illiquid and hasn't traded on the market. But the finance department have assessed the bond's fair value to be $950 and this is its book value right now at the start of the year.

Assume that:

• the firm uses the 'effective interest method' to calculate interest expense.
• the market value of the bond is the same as the book value.
• the firm is only interested in this bond's interest expense. Do not include the interest expense for a new bond issued to refinance the current one, as would normally happen.

What will be the interest expense of the bond this year for the purpose of forecasting the income statement?

A 90-day $1 million Bank Accepted Bill (BAB) was bought for $990,000 and sold 30 days later for $996,000 (at t=30 days).

What was the total return, capital return and income return over the 30 days it was held?

Despite the fact that money market instruments such as bills are normally quoted with simple interest rates, please calculate your answers as compound interest rates, specifically, as effective 30-day rates, which is how the below answer choices are listed.

##r_\text{total}##, ##r_\text{capital}##, ## r_\text{income}##

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. All rates are effective annual returns.

What is the expected dividend cash flow, economic depreciation, and economic income and economic value added (EVA) that will be earned over the second year (from t=1 to t=2) and paid at the end of that year (t=2)?

What is the lowest and highest expected share price and expected return from owning shares in a company over a finite period of time?

Let the current share price be ##p_0##, the expected future share price be ##p_1##, the expected future dividend be ##d_1## and the expected return be ##r##. Define the expected return as:

##r=\dfrac{p_1-p_0+d_1}{p_0} ##

The answer choices are stated using inequalities. As an example, the first answer choice "(a) ##0≤p<∞## and ##0≤r< 1##", states that the share price must be larger than or equal to zero and less than positive infinity, and that the return must be larger than or equal to zero and less than one.

The expression 'you have to spend money to make money' relates to which business decision?

You expect a nominal payment of $100 in 5 years. The real discount rate is 10% pa and the inflation rate is 3% pa. Which of the following statements is NOT correct?

Which of the following statements about inflation is NOT correct?

Itau Unibanco is a major listed bank in Brazil with a market capitalisation of equity equal to BRL 85.744 billion, EPS of BRL 3.96 and 2.97 billion shares on issue.

Banco Bradesco is another major bank with total earnings of BRL 8.77 billion and 2.52 billion shares on issue.

Estimate Banco Bradesco's current share price using a price-earnings multiples approach assuming that Itau Unibanco is a comparable firm.

Note that BRL is the Brazilian Real, their currency. Figures sourced from Google Finance on the market close of the BVMF on 24 July 2015.

The market expects the Reserve Bank of Australia (RBA) to increase the policy rate by 25 basis points at their next meeting. The current exchange rate is 0.8 USD per AUD.

Then unexpectedly, the RBA announce that they will increase the policy rate by 50 basis points due to increased fears of inflation.

What do you expect to happen to Australia's exchange rate on the day when the surprise announcement is made? The Australian dollar is likely to suddenly: