Fight Finance

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Question 9  DDM, NPV

For a price of $129, Joanne will sell you a share which is expected to pay a $30 dividend in one year, and a $10 dividend every year after that forever. So the stock's dividends will be $30 at t=1, $10 at t=2, $10 at t=3, and $10 forever onwards.

The required return of the stock is 10% pa.

Would you like to the share or politely ?


Question 17  bond pricing

A three year bond has a face value of $100, a yield of 10% and a fixed coupon rate of 5%, paid semi-annually. What is its price?



Question 69  interest tax shield, capital structure, leverage, WACC

Which statement about risk, required return and capital structure is the most correct?



Question 300  NPV, opportunity cost

What is the net present value (NPV) of undertaking a full-time Australian undergraduate business degree as an Australian citizen? Only include the cash flows over the duration of the degree, ignore any benefits or costs of the degree after it's completed.

Assume the following:

  • The degree takes 3 years to complete and all students pass all subjects.
  • There are 2 semesters per year and 4 subjects per semester.
  • University fees per subject per semester are $1,277, paid at the start of each semester. Fees are expected to stay constant for the next 3 years.
  • There are 52 weeks per year.
  • The first semester is just about to start (t=0). The first semester lasts for 19 weeks (t=0 to 19).
  • The second semester starts immediately afterwards (t=19) and lasts for another 19 weeks (t=19 to 38).
  • The summer holidays begin after the second semester ends and last for 14 weeks (t=38 to 52). Then the first semester begins the next year, and so on.
  • Working full time at the grocery store instead of studying full-time pays $20/hr and you can work 35 hours per week. Wages are paid at the end of each week.
  • Full-time students can work full-time during the summer holiday at the grocery store for the same rate of $20/hr for 35 hours per week. Wages are paid at the end of each week.
  • The discount rate is 9.8% pa. All rates and cash flows are real. Inflation is expected to be 3% pa. All rates are effective annual.

The NPV of costs from undertaking the university degree is:



Question 491  capital budgeting, opportunity cost, sunk cost

A man is thinking about taking a day off from his casual painting job to relax.

He just woke up early in the morning and he's about to call his boss to say that he won't be coming in to work.

But he's thinking about the hours that he could work today (in the future) which are:



Question 706  utility, risk aversion, utility function

Mr Blue, Miss Red and Mrs Green are people with different utility functions.

Note that a fair gamble is a bet that has an expected value of zero, such as paying $0.50 to win $1 in a coin flip with heads or nothing if it lands tails. Fairly priced insurance is when the expected present value of the insurance premiums is equal to the expected loss from the disaster that the insurance protects against, such as the cost of rebuilding a home after a catastrophic fire.

Which of the following statements is NOT correct?

Utility curves



Question 723  mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate

Here is a table of stock prices and returns. Which of the statements below the table is NOT correct?

Price and Return Population Statistics
Time Prices LGDR GDR NDR
0 100      
1 99 -0.010050 0.990000 -0.010000
2 180.40 0.600057 1.822222 0.822222
3 112.73 0.470181 0.624889 0.375111
 
Arithmetic average 0.0399 1.1457 0.1457
Arithmetic standard deviation 0.4384 0.5011 0.5011
 

 



Question 888  foreign exchange rate, speculation, no explanation

The current Australian exchange rate is 0.8 USD per AUD.

If you think that the AUD will depreciate against the USD, contrary to the rest of the market, how could you profit? Right now you should:



Question 892  foreign exchange reserve, foreign exchange rate, no explanation

The Chinese central bank has the largest amount of foreign currency reserves.

What could the large amounts of foreign exchange reserves held by the Chinese government be used for in a currency crisis? China's currency is called the Renminbi (RMB) or Yuan (CNY). In a Chinese currency crisis the Chinese government is likely to use its FX reserves to:



Question 968  foreign exchange rate, forward foreign exchange rate, cross currency interest rate parity, no explanation

Below is a graph showing the spread or difference between government bond yields in different countries compared to the US. Assume that all governments have zero credit risk.

According to the principle of cross-currency interest rate parity, which country is likely to have the greatest expected currency appreciation against the USD over the next 2 years?