part a

Read the announcement by Tesla (NASDAQ: TSLA) below:

Tesla Announces a Five-for-One Stock Split

GLOBE NEWSWIRE, Aug 11, 2020

PALO ALTO, Calif., Aug. 11, 2020 (GLOBE NEWSWIRE) -- Tesla, Inc. announced today that the Board of Directors has approved and declared a five-for-one split of Teslas common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.

Which of the following statements is NOT correct? Compared to Friday 28^th August 2020, on Monday 31^st August 2020 Teslas:

Select one:

a. Number of stock should increase.

b. Share price should fall.

c. PE ratio should fall.

d. Dividend yield should remain the same.

e. Earnings should remain the same.

part b

Which of the following assets has a:

-Negative expected capital return; and an

-Income return that is greater than the total return?

Assume that all assets have positive required total returns, inflation is expected to be zero, and all debts will be fully repaid (no credit risk).

Select one:

a. Gold

b. 5% coupon par bond.

c. Interest only loan.

d. Fully amortising loan.

e. A dividend-paying stock with a 50% payout ratio.

part c

You have $1 million in cash and are considering investment in bank deposits or a house.

Deposits at the bank earn 5% pa and rental yields on houses also earn 5% pa.

Assume that:

-Both bank interest rates and rental yields are not expected to change in the future.

-House rents and prices are expected to remain constant in the future.

-Bank deposit investments and house investments have the same risk.

Then unexpectedly, the central bank decreases interest rates by 1 percentage point. Banks decrease their deposit rate to 4% pa. House rents remain unchanged.

What do you expect to happen to house prices as soon as the news is released?

Select one:

a. Remain unchanged.

b. Rise by 1%.

c. Fall by 1%.

d. Rise by 25%.

e. Fall by 25%.

part d

As the COVID-19 pandemic shut down major cities and world travel in early 2020, airline and tourism-related stock prices crashed. Assuming that these stocks can be valued using the dividend discount model and CAPM, and all other factors remain equal, which of the following statements do NOT explain why airline and travel stock prices crashed?

Select one:

a. Lower risk free interest rates due to expansionary monetary policy.

b. A postponement of dividends until revenue and earnings recover when vaccines become available.

c. Lower dividend and earnings levels due to business peoples' new found preferences for online rather than physical meetings.

d. Higher market risk premiums due to investors' heightened awareness of share market volatility.

e. Higher systematic risk in the airline and travel industry due to a higher correlation with the market portfolio from dependence on holiday-maker travel rather than business travel.

part e

A stock has a beta of 0.5. The market risk premium is 6% pa and the risk free rate is 2% pa, both given as effective annual rates.

Which of the below statements is NOT correct?

Select one:

a. The market portfolios total required return is 8% pa and this is also its expected total future return if its fairly priced.

b. The stocks required total return is 5% pa and this is also its expected total future return if its fairly priced.

c. If the market portfolio suddenly fell by 4% in the last 5 minutes, then the stocks price would be expected to fall by 4% over that same short time.

d. If the market portfolios total return was 10% over the last year, the stocks total historical return is expected to be 8% over the same one year period.