A firm has a debt-to-assets ratio of 50%. The firm then issues a large amount of equity to raise money for new projects of similar systematic risk to the company's existing projects. Assume a classical tax system. Which statement is correct?
A stock's correlation with the market portfolio increases while its total risk is unchanged. What will happen to the stock's expected return and systematic risk?
A 2 year government bond yields 5% pa with a coupon rate of 6% pa, paid semi-annually.
Find the effective six month rate, effective annual rate and the effective daily rate. Assume that each month has 30 days and that there are 360 days in a year.
All answers are given in the same order:
##r_\text{eff semi-annual}##, ##r_\text{eff yrly}##, ##r_\text{eff daily}##.
Which one of the following bonds is trading at par?
Find Piano Bar's Cash Flow From Assets (CFFA), also known as Free Cash Flow to the Firm (FCFF), over the year ending 30th June 2013.
| Piano Bar | ||
| Income Statement for | ||
| year ending 30th June 2013 | ||
| $m | ||
| Sales | 310 | |
| COGS | 185 | |
| Operating expense | 20 | |
| Depreciation | 15 | |
| Interest expense | 10 | |
| Income before tax | 80 | |
| Tax at 30% | 24 | |
| Net income | 56 | |
| Piano Bar | ||
| Balance Sheet | ||
| as at 30th June | 2013 | 2012 |
| $m | $m | |
| Assets | ||
| Current assets | 240 | 230 |
| PPE | ||
| Cost | 420 | 400 |
| Accumul. depr. | 50 | 35 |
| Carrying amount | 370 | 365 |
| Total assets | 610 | 595 |
| Liabilities | ||
| Current liabilities | 180 | 190 |
| Non-current liabilities | 290 | 265 |
| Owners' equity | ||
| Retained earnings | 90 | 90 |
| Contributed equity | 50 | 50 |
| Total L and OE | 610 | 595 |
Note: all figures are given in millions of dollars ($m).
You own an apartment which you rent out as an investment property.
What is the price of the apartment using discounted cash flow (DCF, same as NPV) valuation?
Assume that:
- You just signed a contract to rent the apartment out to a tenant for the next 12 months at $2,000 per month, payable in advance (at the start of the month, t=0). The tenant is just about to pay you the first $2,000 payment.
- The contract states that monthly rental payments are fixed for 12 months. After the contract ends, you plan to sign another contract but with rental payment increases of 3%. You intend to do this every year.
So rental payments will increase at the start of the 13th month (t=12) to be $2,060 (=2,000(1+0.03)), and then they will be constant for the next 12 months.
Rental payments will increase again at the start of the 25th month (t=24) to be $2,121.80 (=2,000(1+0.03)2), and then they will be constant for the next 12 months until the next year, and so on. - The required return of the apartment is 8.732% pa, given as an effective annual rate.
- Ignore all taxes, maintenance, real estate agent, council and strata fees, periods of vacancy and other costs. Assume that the apartment will last forever and so will the rental payments.
Question 748 income and capital returns, DDM, ex dividend date
A stock will pay you a dividend of $2 tonight if you buy it today.
Thereafter the annual dividend is expected to grow by 3% pa, so the next dividend after the $2 one tonight will be $2.06 in one year, then in two years it will be $2.1218 and so on. The stock's required return is 8% pa.
What is the stock price today and what do you expect the stock price to be tomorrow, approximately?
Question 965 foreign exchange reserve, foreign exchange rate, no explanation
Observe the below graph of Chinese foreign exchange reserves held by the central bank, as well as the Chinese currency the Yuan (CNY, also called the Renminbi, RMB) against the US Dollar. Note the inverted y-axis scale on the Yuan exchange rate graph.
Which of the below statements is NOT correct?
Question 981 margin loan, Basel accord, credit conversion factor
Margin loans secured by listed stock have a Basel III risk weight of 20%.
For margin loans that cannot be immediately cancelled by banks and asked to be repaid, the credit conversion factor (CCF) is 20%.
Suppose you have a stock portfolio worth $500,000, financed by:
- $300,000 of your own money; and
- $200,000 of the bank’s funds in the form of a margin loan which can only be cancelled by the bank after 5 days notice. The margin loan’s maximum LVR is 70%.
How much regulatory capital must the bank hold due to your margin loan? Assume that the bank wishes to pay dividends to its shareholders, so include the 2.5% capital conservation buffer in your calculations.