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.
A fixed coupon bond was bought for $90 and paid its annual coupon of $3 one year later (at t=1 year). Just after the coupon was paid, the bond price was $92 (at t=1 year). What was the total return, capital return and income return? Calculate your answers as effective annual rates.
The choices are given in the same order: ## r_\text{total},r_\text{capital},r_\text{income} ##.
The required return of a project is 10%, given as an effective annual rate. Assume that the cash flows shown in the table are paid all at once at the given point in time.
What is the Net Present Value (NPV) of the project?
Project Cash Flows | |
Time (yrs) | Cash flow ($) |
0 | -100 |
1 | 11 |
2 | 121 |
Question 100 market efficiency, technical analysis, joint hypothesis problem
A company selling charting and technical analysis software claims that independent academic studies have shown that its software makes significantly positive abnormal returns. Assuming the claim is true, which statement(s) are correct?
(I) Weak form market efficiency is broken.
(II) Semi-strong form market efficiency is broken.
(III) Strong form market efficiency is broken.
(IV) The asset pricing model used to measure the abnormal returns (such as the CAPM) had mis-specification error so the returns may not be abnormal but rather fair for the level of risk.
Select the most correct response:
Question 119 market efficiency, fundamental analysis, joint hypothesis problem
Your friend claims that by reading 'The Economist' magazine's economic news articles, she can identify shares that will have positive abnormal expected returns over the next 2 years. Assuming that her claim is true, which statement(s) are correct?
(i) Weak form market efficiency is broken.
(ii) Semi-strong form market efficiency is broken.
(iii) Strong form market efficiency is broken.
(iv) The asset pricing model used to measure the abnormal returns (such as the CAPM) is either wrong (mis-specification error) or is measured using the wrong inputs (data errors) so the returns may not be abnormal but rather fair for the level of risk.
Select the most correct response:
A stock was bought for $8 and paid a dividend of $0.50 one year later (at t=1 year). Just after the dividend was paid, the stock price was $7 (at t=1 year).
What were the total, capital and dividend returns given as effective annual rates? The choices are given in the same order:
##r_\text{total}##, ##r_\text{capital}##, ##r_\text{dividend}##.
Which of the following statements about short-selling is NOT true?
When using the dividend discount model, care must be taken to avoid using a nominal dividend growth rate that exceeds the country's nominal GDP growth rate. Otherwise the firm is forecast to take over the country since it grows faster than the average business forever.
Suppose a firm's nominal dividend grows at 10% pa forever, and nominal GDP growth is 5% pa forever. The firm's total dividends are currently $1 billion (t=0). The country's GDP is currently $1,000 billion (t=0).
In approximately how many years will the company's total dividends be as large as the country's GDP?
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 926 mean and median returns, return distribution, arithmetic and geometric averages, continuously compounding rate
The arithmetic average continuously compounded or log gross discrete return (AALGDR) on the ASX200 accumulation index over the 24 years from 31 Dec 1992 to 31 Dec 2016 is 9.49% pa.
The arithmetic standard deviation (SDLGDR) is 16.92 percentage points pa.
Assume that the log gross discrete returns are normally distributed and that the above estimates are true population statistics, not sample statistics, so there is no standard error in the sample mean or standard deviation estimates. Also assume that the standardised normal Z-statistic corresponding to a one-tail probability of 2.5% is exactly -1.96.
If you had a $1 million fund that replicated the ASX200 accumulation index, in how many years would the median dollar value of your fund first be expected to lie outside the 95% confidence interval forecast?