Final exam, questions PDF

Preview

Summary

Download Final exam, questions PDF

Description

Fin111 final revision 18/19 summer For

• mat & structure –

–

10 short-answer and/or calculation questions 60% theoretical & 40% calculation

The majority of theoretical questions (50 out 60 marks) are related to Week 1 (part I & part II) and Week 6 (part I & part II) – All theoretical questions can be found in lecture notes, especially the concepts/topics I emphasised in lectures –

Cal

• culation questions:

Sha

– re valuation

Bon

– d valuation

PV /

– FV of multiple cash flows

Ann

– uity

Effe

– ctive annul rate

Not

–

e: variations may occurs (e.g., to calculation annul CFs, given PV of annuity)

Examples of calculation questions: 1. Kathleen Ferrero is interested in purchasing the ordinary shares of

Vespertine Pty Ltd which is currently priced at $39.96. The company expects to pay a dividend of $2.58 next year and expects to grow at a constant rate of 8 per cent. – a. What should the market value of the share be if the required rate of return is 14 per cent? – b. Is this a good buy? Why or Why not?

Add

– itional question: –

a. What would be the value of each share if Vespertine Ltd. just paid a dividend of $2.58?

–

b. If $39.96 is a fair price, what’s the amount of dividend the company just paid?

2. Pacific Brands Ltd issued 10-year bonds 4 years ago with a coupon rate of 9.375 per cent. At the time of issue, the bonds sold at par. Today bonds of similar risk and maturity will pay a coupon rate of 6.25 per cent. Assuming semi-annual coupon payments and a face value of $1000, what will be the current market price of the company’s bonds?

3. ELM Property Group is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1000. Assuming semiannual

compounding, what will be the price of these bonds if the appropriate discount rate is 12.53 per cent? Additional question: —What would be bond prices in the previous two questions if we assume annual compounding? 4. Marco Boncordo is a Year 9 student. He currently has $7500 in a savings account paying 5.65 per cent annually. Marco plans to use his current savings plus what he can save over the next 4 years to buy a car. He estimates that the car will cost him $12 000 in 4 years. How much money should Marco save each year if he wants to buy the car? 5. During a period of economic expansion, Frank Smith become financially

overextended and was forced to consolidate his debt with a loan from a consumer finance company. The consolidated debt provided Frank with a single loan and lower monthly payments than he had previously been making. The loan agreement quotes an APR of 20 per cent, and Frank must make monthly payments. What is the true cost of the loan?...