MODULE 5

1.If a company offers a 3-for-6 bonus issue and the current share price cum-bonus is $8.73,
the theoretical value of each share ex-bonus is $__________________ (two decimal places)

Cum-bonus price $8.73

Market value of 6 cum-bonus shares 8.73 x 6 = 52.38
Theoretical value of 9 ex-bonus shares $52.38
Theoretical value of 1 ex-bonus share $5.82

2.The current market price of a stock is $3.24. The rights issue is one-for-ten, priced at
$2.83. The theoretical ex-rights price is $ ______________ (two decimal places) (sai) 3.2

Cum-bonus price $2.83

Market value of 10 cum-bonus shares 2.83 x 10 = 28.3
Theoretical value of 11 ex-bonus shares $28.3
Theoretical value of 1 ex-bonus share $2.57

3.An investor holds 400 shares of a company that is about to make a bonus issue of five
shares for every two held. If the shares are currently trading for $2.85, the value of the
holding after the bonus issue will be $_____________ (two decimal places)

2.85 x 400 = 1140

4.A company declares a dividend of 27 cents per share, with an ex dividend

date of 14 September. Immediately prior to the declaration of the dividend,
the share price was $4.79. At the close of trading on the stock exchange on 13
September, the share price was $5.96. The theoretical ex-dividend price of the
share is $__________ (two decimal places)

5.96 – 0.27 = 5.69

 5.The price of a share with a constant dividend of $1.53, if the growth rate is
zero and the required rate of return is 6.7 per cent per annum is
$______________ (two decimal places)

1.53
=
6.7 %
= 22.84

6.Company shares are priced at $14.49. The company announces a share split of 3 for 1.
The new share price should be $______________  (two decimal places)

3 for 1 split:

Pre-split share price $14.49

Theoretical ex-split share prices $14.49/3 = 4.83

7.The price of a share if it paid $1.4 in dividends in the last financial year, its dividend
growth rate is 3.4 per cent, and the required rate of return is 10.2 per cent should be
$___________ (two decimal places)

1+3.4 %
= 1.4 x
10.2%−3.4 %
= 21.29
8.A company recently announced renounceable offers that give eligible shareholders the
right to purchase the shares of the company at an issue price of $9 per share for every 4
shares they hold. If the cum-right shares are priced at $11, the value of right is
$____________ (two decimal places) 1.6
4 x (11-9)/5 = 1.6

9. A company whose shares are currently trading at $3.7 proposes to have a

25 per cent split; that is, four new shares for one existing share. At the
commencement of the next business day, a dividend of 18 cents is paid on
existing shares, followed immediately by the share split. The theoretical price
of the new shares is $________ (two decimal places)

4 for 1split

3.7/4 = 0.93

10.BH Mining declared a 100 per cent partly franked dividend of $0.60 per share. The
company pays a corporate tax rate of 30 per cent. If a shareholder holds 100 shares of BH
Mining and the shareholder’s marginal tax rate is 37 per cent, the tax payable by the
shareholder is $__________ 6

Franked credit per share = 0.6 x 0.3/0.7 = 0.26

Taxable income = 0.26 + 0.6 = 0.96
Gross taxable per share = 0.96 x 0.37 = 0.32
Taxable per share = 0.32 - 0.26 = 0.057
Tax payable = 0.057 x 100 = 5.7

MODULE 6
SIMPLE INTEREST

1.A bank bill with a face value of $500,000 and 90 days to maturity is purchased with a
yield to maturity of 7.44% per annum. After the bill has been held for 28 days, it is sold at
a yield of 6.78% per annum. The holding period yield for the holder of the note is ________
% (two decimal places)
 500000
=
[ (
1+
90
365
x 7.44 % )]
= 490992.64

500000
=
[ (
1+
62
365
x 6.78 % )]
= 494307.21

The investor bought low at 490992.64 and sell high at 494307.21 => profit = 3314.57
365 I
i= ×
d A

365 3314.57
Holding Period Yield=HPY= x
28 490992.64
= 8.8%

2.If you invest $1800 for two years at 6.1% per annum simple interest, the value of your
investment at the end of the two years will be $__________ (two decimal places)

S= A [1+ ( n × i ) ]

= $1800 [ 1+ (2 x 6.1%)] = 2019.6

3.If you invest $_______ to earn simple interest of 7.59% per year, you will
receive $12,619 at the end of two years

S
A=
[ 1+ ( n ×i ) ]
12619
¿
[1+( 2 ×7.59 % ) ]
= 10955.90
4.If you invest $14100 for 18 months at 7% per annum simple interest, the
value of your investment at the end of the 18 months will be
$________________ (two decimal places)

S= A [1+ ( n × i ) ]

= 14100[1+(1.5 x 7%) = 15580.5

5. If you invest $1,259 for a year at 7% per annum simple interest, you will earn $
___________ of interest (two decimal places) 

d
I= A× ×i
365

= 1259 x 1 x 7% = 88.13$

6. If a company sells (discounts) a bank bill with a face value of $500 000, a term to
maturity of 120 days, and a yield of 7.67% per annum, the company will raise
$_______________ on the issue? (Ignore transaction fees, two decimal places)

500000
=
[ (
1+
120
365
x 7.67 % )] = 487701.90
7. If you borrow $100,000 for 90 days with simple interest of 8.3% per annum, 
the total amount of interest paid on the loan is $ _____________ (two decimal
places)

d
I= A× ×i
365

= 100,000 x 90/365 x 8.3% = 2046.58

8. If your deposit of $30,000 becomes $30,360 at the end of 120 days, the
annual yield earned is _________% (two decimal places)

365 I
i= ×
d A
= 365/120 x 360/30000 = 3.65% I=360

9. If you receive $100 000 back as principal and interest at the end of the year for
an initial investment of $93,483 at the start of the year, the interest rate that has
been earned on your investment is ________% (two decimal places)

365 I
i= ×
d A

= 365/365 x 6517/93483 = 6.95% I= 6517

10. If a company sells (discounts) a bank bill with a face value of $100 000, a
term to maturity of 90 days, and a yield of 7.25% per annum, the company will
raise $__________________ on the issue? (Ignore transaction fees, two decimal
places)

S
A=
[ 1+ ( n ×i ) ]
100000
¿
¿¿
= 98243.73

COMPOUND INTEREST

1. If you make an investment and agree to pay regular monthly payments of

$400 at the end of the next twelve months, starting one month from
today, i.e., no payment is made at the end of the first month, what is the
present value of this investment if the interest rate is 6% per annum
compounded monthly?  $__________ (two decimal places) (sai) (4249.56)

= 400 x ¿) = 4247.57
2. The present value of an annuity of $20000, received at the end of every year
for 18 years, where the required rate of return is 5.18% per annum,
compounded annually, is: $_______________ (two decimal places)
= 20000 x ¿) = 230538.49
3. An $6000 bank deposit earning annually compounding interest of 8.1% per
annum grows to $_______ (two decimal places) in 6.25 years

S = A x (1 + i)n

= 6000 x (1+8.1%)6.25

= 9762.52

4. If you borrow $13000 for 5 years at an annually compounding rate of 8.42% per annum,
what is the total interest on the loan if the interest due is added to the principal over the
period and repaid at the maturity date? Total interest = $___________ (two decimal places)
(ko co annuity)

S = A x (1 + i)n

= 13000 x (1+8.42%)5 = 19475.58

Total interest payment = 19475.58 – 13000 = 6475.58

5. If you are saving for an overseas trip and put $500 every month into an
account paying 6.59% per annum, compounding monthly, how much will you
have at the end of 3.25 years? $_________________ (two decimal places)

= 500 x ¿) = 21679.55
6. The future value in 6 years of $9,000 invested today, compounding at 8.73%
per annum, is $______________ (two decimal places)

S = A x (1 + i)n

= 9000 x (1+ 8.73%)6

7. What is the future value in four-and-a-half years of $6000 invested today at 6.58%
compounded semi-annually?

S = A x (1 + i)n

= 6000 x (1+ 6.58%/2)4.5 x 2 = 8029.26

8. If you borrow $15000 for 4 years at an interest rate of 4.77% per annum,
with the interest compounding quarterly, how much will you have to pay at
the end of the period? $_______________ (two decimal places)

S = A x (1 + i)n

= 15000 x (1+ 4.77%/4)4 x 4 = 18132.78

9. The present value of an annuity of $500, received at the end of every month
for 20 years, where the required rate of return is 3.31% per annum,
compounded monthly, is: $_______________ (two decimal places)

= 500 x ¿) = 87681.76
10. If interest rates are 7.91% per annum, compounded annually, the present
value of $36000 received at the end of 3 years is: $__________________ (two decimal
places)

A = S x (1+ i)-n

= 36000 x (1+ 7.91%)-3 = 28649.52

MODULE 9
1. An FX dealer is quoting  AUD/USD 0.5373-78.

Transpose the quotation.  What is the dealer's bid now? (do not enter the
currency codes)
ASK PRICE 0.5378

BID PRICE 0.5373

Dealer’s bid = 1/0.5378 = 1.8594

2. A French importer has entered into a contract under which it will require
payment in GBP in one month. The company is concerned at its exposure to
foreign exchange risk and decides to enter into a forward exchange contract
with its bank. Given the following (simplified) data, calculate the forward rate
offered by the bank (round your answer to 4 decimal places and do not enter
the three character currency codes). Both countries use a 365-day year;
assume 30 day contract.

EUR/GBP (spot): 0.7160-69 Base currency EUR Quote currency

GBP

One-month French interest rate: 4.35% p.a.

One-month UK interest rate: 3.55% p.a.

[ ( days ∈ year )

]
forward days
1+ ¿ ×
Points=S −1
1+( Ib ×
days∈ year )
forward days

[
( 365 )

]
30
1+ 3.55 % ×
Points=0.7160 −1
1+( 4.35 % ×
365 )
30

= - 0.0005

-> Forward rate = 0.7160 – 0.0005 = 0.7155

3. Calculate the current EUR/JPY bid exchange rate, (rounded to two decimal

places) given these two quotes: 118.36 ± 0.01
USD/EUR 0.9520-30

USD/JPY 112.80-90
112.80 / 0.9530 = 118.36 122.90/0.9520 = 129.09

4. Calculate the current EUR/JPY offer exchange rate, (rounded to two decimal

places) given these two quotes: 121.97 ± 0.01
USD/EUR 0.9420-30

USD/JPY 114.80-90

144.90/0.9420 = 121.97

CHAPTER 5

2 Disney Corporation is considering the re-release of its classic film library. The
project will involve an investment of $78 000 000 and will produce a positive cash
flow of $25 000 000 in the first year. The cash flows will increase by 10 per cent
each year thereafter for another five years (i.e. the project runs for six years). At that
stage the project will cease. The company expects a rate of return of 17 per cent on
this type of project.

C0 = 78 000 000 ; r = 17%

C1 = 25 000 000 -> C2= 27 500 000 -> C3= 30 250 000 -> C4= 33 275 000 ->

C5 = 36 302500 -> C6= 40 262 750

CHAPTER 6

3 An investor holds the following shares in an investment portfolio:

JB Hi-Fi $6500 28.26% beta 1.20
 Telstra $8600 37.39% beta 0.95
ANZ Bank $7900 34.35% beta 1.05
b. What is the portfolio’s beta?

= (28.26% x 1.2) + (37.39% x 0.95) + (34.35% x 1.05) = 1.055

11 Caltex Australia Limited pays a constant dividend of $0.60 cents per share. A
fund manager is considering purchasing the shares as part of an investment
portfolio. The fund manager requires a return of 15 per cent on the investment.
Calculate the price that the funds manager would be willing to pay for the shares.

=4

12 The last dividend paid to shareholders by Vicinity Centres was $0.10 per share.
Assume that the board of directors of the company plans to maintain a constant
dividend growth policy of 7.00 per cent. An investor, in evaluating an investment in
the company, has determined that she would require a 12 per cent rate of return
from this type of investment. If the current price of Vicinity shares in the stock
market is $4.00, should the investor purchase the shares? (Show calculations.)your

= 2.14

13 AGL Energy Limited has declared a $0.33 cents per share dividend, payable in
one month. At the same time the company has decided to capitalise reserves
through a one for-three bonus issue. The current share price at the close of business
on the final cum-dividend date is $16.15.
Calculate the theoretical share price [(16.15 – 0.33) x 3] / 4 = 11.86

14 Alumina Limited has a share price of $2.82. The company has made a
renounceable rights issue offer to shareholders. The offer is a three-for-ten pro-rata
issue of ordinary shares at $2.60 per share.

Calculate the theoretical ex-rights share price

Cum-rights share price 2.82

Market value of 10 cum-rights shares 28.2

Plus new funds from 3:10 issue 3 x 2.6 = 7.8

Market value of 13 ex-rights shares 28.2 + 7.8 = 36

Theoretical ex-rights share price 2.77

CHAPTER 10

2 A fencing contractor purchases a range of fencing materials from the local

hardware store in order to build a number of paling fences for a housing project.
The hardware store provides its standard trade finance facility to the fencing
contractor.

c. Calculate the opportunity cost of an invoice that specifies the following conditions:
1.25/10, n/30.
% discount 365
Opportunity cost= ×
100−% discount days difference between
early∧late settlement

= 1.25% / 98.75% x 365/20 = 23.10%

7 A company issues a bank-accepted bill to fund a short-term business project. The

bill is issued for 180 days, with a face value of $1 500 000 and a yield of 9.87 per
cent per annum. What amount will the company raise to fund the project?
face value× days ∈ year
Price=
days ∈ year+ ( yield
100
× days ¿ maturity )
 ( 1500000 x 365 )
365+ ( 9.87 % x 180 )
= 1 430 377.83
8 After 43 days, the bank bill in Question 7 is sold by the original discounter into
the secondary market for $1 447 326.50. The purchaser holds the bill to maturity.
What is the yield received by:

a) yield receive by the original owner

(sell price−buy price) (days ∈ year × 100)

Yield= × maturity ¿
buy price days ¿

= ¿1447326.50 – 1430377.83)/ 1430377.83 x (365 x 100)/180 = 10.0517%

b) Yield receive by the holder of the bill to the maturity

(sell price−buy price) (days ∈ year × 100)

Yield= × maturity ¿
buy price days ¿

= ¿1500000 - 1447326.50)/1447326.50 x (365 x 100)/137 = 9.6961%

10 Santos Limited issues 90-day P-notes (commercial paper) as part of a three-year

underwritten facility established with an investment bank syndicate. The
commercial paper has a face value of $29 million and is discounted at a yield of 9.20
per cent per annum

What is the price of the P-notes; that is, what amount will the sale of the commercial
paper raise?
face value× days ∈ year
Price=
days ∈ year+ ( yield
100
× days ¿ maturity )
( 29000000 x 365 )
= 365+ ( 9.20 % x 90 ) = 28,356,729.53
12 A customer of a bank has $500 000 in surplus funds that need to be invested for
a short period of time. The bank offers to sell a 180-day negotiable certificate of
deposit to the customer at a yield of 5.34 per cent per annum. Calculate the face
value of the CD and advise the customer of the dollar return on the CD.
 Face value= price [ 365+ ( yield
100
×days ¿ maturity )

365 ]
= 500000 [ 365+ ( 5.34 % × 180 )
365 ] = 513167.12
The dollar return to the discounter, assuming the CD is held to maturity is
513167.12 – 500000 = 13167.12

CHAPTER 10
6 As the owner of a small architectural firm, you approach the Commonwealth Bank
to obtain a term loan so that the firm can buy a new computer-aided drawing
machine. The bank offers your company a loan of $28 500 over a three-year period
at a rate of interest of 8.65 per cent per annum, payable at the end of each month.
Calculate the monthly loan instalment.
A
R=

[ ]
−n
ORDINARY ANNUITY 1−( 1+i )
i

28500
=
[ 1−( 1+8.65 % /12 )−3∗12
8.65 %/12 ] = 901.66
7 The architectural firm owner in Question 6 also approaches the National
Australia Bank to obtain a quote on the loan facility. The competitor bank (NAB)
also offers the company a fully drawn advance of $28 500 over a three-year period
at a rate of interest of 8.65 per cent per annum, but payable in advance at the
beginning of each month. Calculate the monthly loan instalment. Explain why the
instalment payment is different from the instalment in Question 6.
A
R=
ANNUITY DUE
[ 1−( 1+i )−n
i ]
( 1+ i )
 28500
=
[ ] = 895.20
−3 x 12
1−( 1+8.65 % /12 )
(1+ 8.65 %/12 )
8.65 % /12

9 After three years of excellent business growth, a local mattress manufacturer

decides to expand and purchase new business premises costing $1 250 000. In
addition, establishment expenses of 0.50 per cent of the purchase price, plus
estimated legal expenses of $15 000 are payable. The total cost to purchase the
property will be financed by $225 000 of the firm’s own funds plus a mortgage loan
from ANZ Bank. The bank offers a mortgage loan at 8.15 per cent per annum. The
loan will be amortised by monthly instalments over the next 12 years, payable at the
end of each month. What is the amount of each monthly instalment?

Initial cost = 1250000 + 6250 + 15000 - 225000= 1046250

A
R=

[ ]
−n
1−( 1+i )
i

1046250
=
[ ] = 11411.39
−12∗12
1−( 1+8.15 % /12 )
8.15 % /12

13 Woodside Petroleum Limited has issued $100 million of debentures, with a fixed
interest coupon equal to current interest rates of 7.70 per cent per annum, coupons
paid half-yearly and a maturity of 10 years.

b. After three years, yields on identical types of securities have risen to 8.75 per cent
per annum. The existing debentures now have exactly seven years to maturity. What
is the value, or price, of the existing debentures in the secondary market?

14 On 1 January 2019 a company issued five-year fixed-interest bonds with a face

value of $2 million to an institutional investor, paying half-yearly coupons at 8.36
per cent per annum. Coupons are payable on 30 June and 31 December each year
until maturity. On 15 August 2020 the holder of the bonds sells at a current yield of
8.84 per cent per annum. Calculate the price at which the institutional investor sold
the bonds