What is the theoretical value of a right per existing share?
A. $1·60
B. $0·40
C. $0·50
D. $1·50
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Country X uses the dollar as its currency and country Y uses the dinar.
Country X’s expected inflation rate is 5% per year, compared to 2% per year in country Y. Country Y’s nominal interest rate is 4% per year and the current spot exchange rate between the two countries is 1·5000 dinar per $1.
According to the four-way equivalence model, which of the following statements is/are true?
(1) Country X’s nominal interest rate should be 7·06% per year
(2) The future (expected) spot rate after one year should be 1·4571 dinar per $1
(3) Country X’s real interest rate should be higher than that of country Y
A. 1 only
B. 1 and 2 only
C. 2 and 3 only
D. 1, 2 and 3
Peach Co’s latest results are as follows:
In addition, extracts from its latest statement of financial position are as follows:
What is Peach Co’s return on capital employed (ROCE)?
A. 14%
B. 18%
C. 20%
D. 25%
A company has annual after-tax cash flows of $2 million per year which are expected to continue in perpetuity. The company has a cost of equity of 10%, a before-tax cost of debt of 5% and an after-tax weighted average cost of capital of 8% per year. Corporation tax is 20%.
What is the theoretical value of the company?
A. $20m
B. $40m
C. $50m
D. $25m
Which of the following are descriptions of basis risk?
(1) It is the difference between the spot exchange rate and currency futures exchange rate
(2) It is the possibility that the movements in the currency futures price and spot price will be different
(3) It is the difference between fixed and floating interest rates
(4) It is one of the reasons for an imperfect currency futures hedge
A. 1 only
B. 1 and 3
C. 2 and 4 only
D. 2, 3 and 4