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Question 90  CAPM, risk

According to the theory of the Capital Asset Pricing Model (CAPM), total variance can be broken into two components, systematic variance and idiosyncratic variance. Which of the following events would be considered the most diversifiable according to the theory of the CAPM?



Question 135  credit card, APR, no explanation

Your credit card shows a $600 debt liability. The interest rate is 24% pa, payable monthly. You can't pay any of the debt off, except in 6 months when it's your birthday and you'll receive $50 which you'll use to pay off the credit card. If that is your only repayment, how much will the credit card debt liability be one year from now?



Question 212  rights issue

In mid 2009 the listed mining company Rio Tinto announced a 21-for-40 renounceable rights issue. Below is the chronology of events:

  • 04/06/2009. Share price opens at $69.00 and closes at $66.90.

  • 05/06/2009. 21-for-40 rights issue announced at a subscription price of $28.29.

  • 16/06/2009. Last day that shares trade cum-rights. Share price opens at $76.40 and closes at $75.50.

  • 17/06/2009. Shares trade ex-rights. Rights trading commences.

All things remaining equal, what would you expect Rio Tinto's stock price to open at on the first day that it trades ex-rights (17/6/2009)? Ignore the time value of money since time is negligibly short. Also ignore taxes.



Question 365  DDM, stock pricing

Stocks in the United States usually pay quarterly dividends. For example, the software giant Microsoft paid a $0.23 dividend every quarter over the 2013 financial year and plans to pay a $0.28 dividend every quarter over the 2014 financial year.

Using the dividend discount model and net present value techniques, calculate the stock price of Microsoft assuming that:

  • The time now is the beginning of July 2014. The next dividend of $0.28 will be received in 3 months (end of September 2014), with another 3 quarterly payments of $0.28 after this (end of December 2014, March 2015 and June 2015).
  • The quarterly dividend will increase by 2.5% every year, but each quarterly dividend over the year will be equal. So each quarterly dividend paid in the financial year beginning in September 2015 will be $ 0.287 ##(=0.28×(1+0.025)^1)##, with the last at the end of June 2016. In the next financial year beginning in September 2016 each quarterly dividend will be $0.294175 ##(=0.28×(1+0.025)^2)##, with the last at the end of June 2017, and so on forever.
  • The total required return on equity is 6% pa.
  • The required return and growth rate are given as effective annual rates.
  • Dividend payment dates and ex-dividend dates are at the same time.
  • Remember that there are 4 quarters in a year and 3 months in a quarter.

What is the current stock price?



Question 374  debt terminology

Which of the following statements is NOT equivalent to the yield on debt?

Assume that the debt being referred to is fairly priced, but do not assume that it's priced at par.



Question 395  real option, option

The cheapest mobile phones available tend to be those that are 'locked' into a cell phone operator's network. Locked phones can not be used with other cell phone operators' networks.

Locked mobile phones are cheaper than unlocked phones because the locked-in network operator helps create a monopoly by:



Question 439  option, no explanation

Two call options are exactly the same, but one has a low and the other has a high exercise price. Which option would you expect to have the higher price, the option with the or exercise price, or should they have the price?


Question 472  quick ratio, accounting ratio

A firm has current assets totaling $1.5b of which cash is $0.25b and inventories is $0.5b. Current liabilities total $2b of which accounts payable is $1b.

What is the firm's quick ratio, also known as the acid test ratio?



Question 543  price gains and returns over time, IRR, NPV, income and capital returns, effective return

For an asset price to triple every 5 years, what must be the expected future capital return, given as an effective annual rate?



Question 852  gross domestic product growth, inflation, employment, no explanation

When the economy is booming (in an upswing), you tend to see:




Copyright © 2014 Keith Woodward