Fight Finance

Courses  Tags  Random  All  Recent  Scores

Question 255  bond pricing

In these tough economic times, central banks around the world have cut interest rates so low that they are practically zero. In some countries, government bond yields are also very close to zero.

A three year government bond with a face value of $100 and a coupon rate of 2% pa paid semi-annually was just issued at a yield of 0%. What is the price of the bond?

Question 317  foreign exchange rate, American and European terms

If the USD appreciates against the AUD, the European terms quote of the AUD will or ?

Question 408  leverage, portfolio beta, portfolio risk, real estate, CAPM

You just bought a house worth $1,000,000. You financed it with an $800,000 mortgage loan and a deposit of $200,000.

You estimate that:

  • The house has a beta of 1;
  • The mortgage loan has a beta of 0.2.

What is the beta of the equity (the $200,000 deposit) that you have in your house?

Also, if the risk free rate is 5% pa and the market portfolio's return is 10% pa, what is the expected return on equity in your house? Ignore taxes, assume that all cash flows (interest payments and rent) were paid and received at the end of the year, and all rates are effective annual rates.

Question 483  PE ratio

The below screenshot of Microsoft's (MSFT) details were taken from the Google Finance website on 28 Nov 2014. Some information has been deliberately blanked out.

Image of MSFT on Google finance on 28 Nov 2014

What was MSFT's backwards-looking price-earnings ratio?

Question 486  capital budgeting, opportunity cost, sunk cost

A young lady is trying to decide if she should attend university. Her friends say that she should go to university because she is more likely to meet a clever young man than if she begins full time work straight away.

What's the correct way to classify this item from a capital budgeting perspective when trying to find the Net Present Value of going to university rather than working?

The opportunity to meet a desirable future spouse should be classified as:

Question 513  stock split, reverse stock split, stock dividend, bonus issue, rights issue

Which of the following statements is NOT correct?

Question 526  real and nominal returns and cash flows, inflation, no explanation

How can a nominal cash flow be precisely converted into a real cash flow?

Question 766  CFFA, WACC, interest tax shield, DDM

Use the below information to value a levered company with constant annual perpetual cash flows from assets. The next cash flow will be generated in one year from now, so a perpetuity can be used to value this firm. Both the operating and firm free cash flows are constant (but not equal to each other).

Data on a Levered Firm with Perpetual Cash Flows
Item abbreviation Value Item full name
##\text{OFCF}## $100m Operating free cash flow
##\text{FFCF or CFFA}## $112m Firm free cash flow or cash flow from assets (includes interest tax shields)
##g## 0% pa Growth rate of OFCF and FFCF
##\text{WACC}_\text{BeforeTax}## 7% pa Weighted average cost of capital before tax
##\text{WACC}_\text{AfterTax}## 6.25% pa Weighted average cost of capital after tax
##r_\text{D}## 5% pa Cost of debt
##r_\text{EL}## 9% pa Cost of levered equity
##D/V_L## 50% pa Debt to assets ratio, where the asset value includes tax shields
##t_c## 30% Corporate tax rate


What is the value of the levered firm including interest tax shields?

Question 820  option, future, no explanation

What derivative position are you exposed to if you have the obligation to sell the underlying asset at maturity, so you will definitely be forced to sell the underlying asset?

Question 927  mean and median returns, mode return, 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 mean dollar value of your fund first be expected to lie outside the 95% confidence interval forecast?