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Question 286  bill pricing

A 30-day Bank Accepted Bill has a face value of $1,000,000. The interest rate is 2.5% pa and there are 365 days in the year. What is its price now?

Question 708  continuously compounding rate, continuously compounding rate conversion

Convert a 10% continuously compounded annual rate ##(r_\text{cc annual})## into an effective annual rate ##(r_\text{eff annual})##. The equivalent effective annual rate is:

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 285  covariance, portfolio risk

Two risky stocks A and B comprise an equal-weighted portfolio. The correlation between the stocks' returns is 70%.

If the variance of stock A's returns increases but the:

  • Prices and expected returns of each stock stays the same,
  • Variance of stock B's returns stays the same,
  • Correlation of returns between the stocks stays the same.

Which of the following statements is NOT correct?

Question 589  future, contango, market efficiency

In general, stock prices tend to rise. What does this mean for futures on equity?

Question 537  PE ratio, Multiples valuation, no explanation

Estimate the French bank Societe Generale's share price using a backward-looking price earnings (PE) multiples approach with the following assumptions and figures only. Note that EUR is the euro, the European monetary union's currency.

  • The 4 major European banks Credit Agricole (ACA), Deutsche Bank AG (DBK), UniCredit (UCG) and Banco Santander (SAN) are comparable companies to Societe Generale (GLE);
  • Societe Generale's (GLE's) historical earnings per share (EPS) is EUR 2.92;
  • ACA's backward-looking PE ratio is 16.29 and historical EPS is EUR 0.84;
  • DBK's backward-looking PE ratio is 25.01 and historical EPS is EUR 1.26;
  • SAN's backward-looking PE ratio is 14.71 and historical EPS is EUR 0.47;
  • UCG's backward-looking PE ratio is 15.78 and historical EPS is EUR 0.40;

Note: Figures sourced from Google Finance on 27 March 2015.

Question 165  DDM, PE ratio, payout ratio

For certain shares, the forward-looking Price-Earnings Ratio (##P_0/EPS_1##) is equal to the inverse of the share's total expected return (##1/r_\text{total}##). For what shares is this true?

Use the general accounting definition of 'payout ratio' which is dividends per share (DPS) divided by earnings per share (EPS) and assume that all cash flows, earnings and rates are real rather than nominal.

A company's forward-looking PE ratio will be the inverse of its total expected return on equity when it has a:

Question 1084  fully amortising loan

Below is a 'borrowing power' calculator by the company InfoChoice which helps calculate how much you can borrow to buy a house, based on your income and expenses.

An individual (not a couple) with no children (zero dependents) earning $4,000 net income per month with no other income, no other loans, no credit cards (zero credit card limit) and $21,092.76 annual living expenses with a 6% pa interest rate on a 25 year loan subjected to an APRA-imposed interest rate buffer of 3% pa can borrow up to $267,000, rounded down to the nearest thousand.

borrowing power calculator

Note that all information needed to answer the below questions is given in the screenshot above, except the $21,092.76 annual living expenses ($1,757.73 paid monthly in arrears) which are contained in the assumptions
Which of the below statements about this borrowing power calculator is NOT correct?

Question 751  NPV, Annuity

Telsa Motors advertises that its Model S electric car saves $570 per month in fuel costs. Assume that Tesla cars last for 10 years, fuel and electricity costs remain the same, and savings are made at the end of each month with the first saving of $570 in one month from now.

The effective annual interest rate is 15.8%, and the effective monthly interest rate is 1.23%. What is the present value of the savings?

Question 66  CAPM, SML

Government bonds currently have a return of 5% pa. A stock has an expected return of 6% pa and the market return is 7% pa. What is the beta of the stock?