Suppose you buy a share for $100 and expect that the price next year will be:

$115 with a probability of 25%
$105 with a probability of 45%
$95 with a probability of 30%.
Assuming that the stock pays no dividend for the next year, then the expected return on your investment expressed as a percentage to 2 decimal places is:


2.Cooma Craft Ltd has just declared a dividend of $0.50 today. The company is in steady business, servicing the tourist industry to Cooma in southern New South Wales. It expects that this dividend will be able to grow at a steady rate of 3.5% for ever. You consider that the required rate of return for this company should be 12% p.a. The fair value of one share in Cooma Craft Ltd is approximately



3.In light of the impact of the coronavirus pandemic, Katherine Mutual Bank in the Northern Territory, would like to set up a reserve fund. The fund will earn an interest rate of 4.7% per annum. If the fund pays a fixed amount of $11 million to the bank annually for an infinite period, starting three years from today, how much does the bank need in the fund today?



4.Question 276:: [html] Cecilia is 25 years old and plans to invest $1,000 each year in a retirement savings account for 40 years, starting today. If the retirement savings investment will earn 9.75% p.a. compounding annually, how much will she have in exactly 40 years from today when she turns 65 years old?



5.Abbey's parents make a deposit at her birth. The bank pays interest at 5% p.a. effective. For Abbey to be able to withdraw 5 annual payments of $5,000 starting on her 21st birthday, how much should Abbey's parents deposit at her birth?



6.Cheltenham College Ltd has just issued some corporate bonds that have a 10-year term to maturity. The face value per bond is $1,000; the coupon rate is 5% p.a., with coupons being paid annually. Assume that similar bonds trade at a market rate of interest (i.e. yield to maturity) of 6% p.a. The best estimate of the value of one of these bonds is



7.Albert is considering investing in an annuity being offered by Casey Investments Ltd. The annuity will pay him $7,000 per quarter for 5 years. Albert is trying to work out how much this annuity is worth. He thinks that he should receive a return equivalent to an effective annual interest rate of 4.0% per annum. What is the value of this annuity to Albert?

Answer rating: 100% (QA)

SOLUTION 1 We can calculate the expected return on the investment by taking a weighted average of the possible returns where the weights are the probabilities of each return occurring The possible ret... View the full answer