A Dollar Saved Is Two Dollars Earned - Accounting and Finance Assignment Help

Assignment Task

Question 1 
How much could you borrow from the bank using a 25-year fully amortising home loan at an interest  rate of 3.8% pa compounding monthly if you can afford to make monthly payments of $4,000?  Assume a constant interest rate. The amount that you could borrow now is: 
(a) $917,710.70  
(b) $523,562.99  
(c) $750,000.00  
(d) $900,000.00  
(e) $773,909.11 
Question 2 
The yield to maturity of a bond is the discount rate that makes the present value of the coupon and  principal payments  
(a) exceed the price of the bond.  
(b) equal to zero.  
(c) equal to the price of the bond.  
(d) less than the price of the bond.  
(e) None of the listed answers 
Question 3 
You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of  Treasury notes that pay 5% and a risky portfolio, P, constructed with two risky securities X and Y. The  optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of  14% and Y has an expected rate of return of 10%. If you decide to hold 25% of your complete portfolio  in the risky portfolio and 75% in the Treasury notes then calculate the dollar values of your positions in  X and Y respectively? 
(a) 250 and 950 
(b) 640 and 350 
(c) 150 and 100 
(d) 250 and 150 
(e) 263 and 350
Question 4 
Which of the following statements about Capital Asset Pricing Model (CAPM) theory is NOT  correct? (S1, 2019) 
(a) The market portfolio M has systematic risk only. It’s a fully diversified portfolio comprised of all  individual risky assets. The market portfolio is usually assumed to be the equity index, such as the  ASX200 in Australia or the S&P500 in the US.  
(b) The risk free security has no risk at all. Government bonds are usually assumed to be the risk-free  security.  
(c) Portfolio combinations of the market portfolio and risk free security will not plot on the CML and  will have systematic risk only. They will have no diversifiable risk.  
(d) The portfolios on the CML with a return above risk free have maximum return for any given level  of risk.  
(e) The individual assets and portfolios with returns less than the risk free rate are overpriced, have a  negative Jensen’s alpha, positive beta and should be sold. 
Question 5 
The saying "A dollar saved is two dollars earned" would be more fully explained if it said: 
(a) A dollar of after-tax income saved is equivalent to the first two dollars of pre-tax income earned if  your average tax rate is 50%. 
(b) A dollar of pre-tax income saved is equivalent to the first two dollars of pre-tax income earned if  your average tax rate is 50%. 
(c) A dollar of after-tax income saved is equivalent to an additional two dollars of after-tax income  earned if your average tax rate is 50%. 
(d) A dollar of pre-tax income saved is equivalent to an additional two dollars of pre-tax income  earned if your marginal tax rate is 50%. 
(e) A dollar of after-tax income saved is equivalent to an additional two dollars of pre-tax income  earned if your marginal tax rate is 50%.
Question 6 
Which of the following statements about a firm’s debt and equity is NOT correct? (a) Debt assets such as bonds and loans are lower risk investments than shares. 
(b) Bonds and loans usually have higher expected returns than shares because they have first claim on  the firm’s assets. 
(c) Firms' past realised debt returns are usually lower than their past realised share returns. (d) In the event of bankruptcy, debt holders are paid in full before equity holders are paid anything. 
(e) If a firm makes very high profits and cash flows, the debt holders are still only paid the interest  and principal payments that they’re promised and no more. For this reason, returns on debt have a  maximum.  
Question 7 
Assume a company is funded by both equity and debt. Company is funded by $100m worth of 3 years  bond priced at par and pay fixed coupon of 8%p.a. Company has 2 million shares with a market value  of $75 each. The shares’ expected dividend yield is 5% pa and total required return is 15% pa. Find  the pre-tax WACC? 
(a) 0.450 
(b) 0.153 
(c) 0.705 
(d) 0.881 
(e) 0.122 
Question 8 
Assume a company market capitalisation is 200mm and its overall no of shares is 10million. The  company just paid a $2 dividend for ordinary shares and dividend is expected to grow at a rate of 3%  into the foreseeable future. Find the cost of equity capital of ABC?  
(a) 15.55% 
(b) 10.92 % 
(c) 13.30% 
(d) 18.68% 
(e) 19.70% 
Question 9 
ANZ Insurance Ltd. issued a fixed-rate perpetual preference share 5 years ago and placed it privately  with institutional investors. The share was issued at $50.00 per share with a $2.85 dividend. If the  company were to issue preference shares today, the yield would be 4.65 per cent. The share’s current  value is  
(a) $25.55 
(b) $26.92  
(c) $61.30  
(d) $40.18 
(e) $56.20
Question 10 
The cash flow for year 0 1 and 2 is -$1000, 0 and $1360? What is the internal rate of return if all  answers are given as effective annual rate? 
(a) 16.62% 
(b) 10.50% 
(c) 15.65% 
(d) 12.35% 
(e) 11.78%
Short answer questions 
Question 1 
Explain how the imputation tax system varies from classical tax system? Using a table show an  example to demonstrate your reasoning. (5 marks) 
Question 2 
Currently the term structure is as follows: one-year bonds yield 7%, two-year bonds yield 8% three year bonds and greater maturity bonds all yield 9%. You are choosing between one-two- and three year maturity bonds all paying annual coupons of 8%, once a year. Which bond should you buy if you  strongly believe that at year end the yield curve will be flat. 
 

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