Question 1 [10 marks]

Peter buys a 180-day bank bill with a face value of $500 000 at a yield of 2.9% p.a. (simple interest). After 92 days he sells it at a yield of 3.2% p.a. (simple interest). a. [7 marks] Draw a fully labelled cash flow diagram (from Peter's perspective) that describes Peter's purchase and sale of the bank bill. b. [3 marks]What is the value of yield (simple interest) that Peter earned on this transaction? Include carefully detailed working with your solution.

Question 2 [10 marks]

Anthony is trying to convince me to invest in his face mask production factory. He claims that a investment of $100 000 today will generate a $300 000 pay off in five and a half years' time. What annual rate of compound interest is Anthony promising me? Give your answer to two decimal places. Include a fully labelled cash flow diagram (from Anthony's perspective) in your solution. Also include your equation of value, and full working.

Question 3 [10 marks]

Your broker has just sent you details of a new share offer in a hand sanitiser business. She has indicated that the business just paid its annual dividend of $2.24 per share. She believes dividends are expected to grow at 2% p.a. a. [6 marks] If you wish a return of 6% p.a. on your investment, what is the maximum price you would be willing to pay for each share? b. [4 marks] Your broker tells you that the business has priced its shares at $142. What annual rate of growth does the company expect its dividends to grow at? (Assume a market valuation rate of 6% p.a.; give your answer to two decimal places.) Include with both answers a fully labelled cash flow diagram (drawn from the company's perspective), your chosen valuation date and equations of value.