1.

If 16% pa is an annual percentage rate (APR) compounding every quarter, which of the following is NOT correct? All percentages are given to 5 decimal places.

a.

The annual percentage rate (APR) compounding every month is 15.79128%.

b.

Effective quarterly rate is 4.00000% per quarter.

c.

Effective monthly rate is 1.84756% per month.

d.

Continuously compounded quarterly rate is 3.92207% per quarter.

e.

Continuously compounded semi-annual rate is 7.84414% per half year.

2

The below table shows the details of a portfolio of two assets A and B.

Portfolio Details
Asset	Expected return	Standard deviation	Beta	Covariance (A, B)	Expected Portfolio Return
A	0.05	0.4	1.3	0.16	0.08
B	0.09	0.7	1.6

Which one of the following statements is NOT correct?

a.

The portfolio has some diversification.

b.

The correlation of asset A and Bs returns is 0.571.

c.

The portfolio beta is 2.725.

d.

The standard deviation of the portfolio is 0.588.

e.

The portfolio weight in asset A is 25%.

3

You are provided with the following forecast of a firm's nominal Equity Free Cash Flows (EFCF):

Year 1: $5 million

Year 2: $6 million

Year 3: $7 million

From year 3 onwards, the nominal EFCF is expected to grow at the country's nominal GDP growth rate forever.

The perpetuity formula can be used to find the terminal value of the EFCF.

The nominal required return on equity is 7% pa.

The analyst forecasts GDP growth to be 1.5% pa in real terms or constant prices from year 3 onwards.

Inflation is expected to be 2% pa from year 3 onwards. All rates are effective annual rates.

What is the firms market value of equity?

a.

$74,154,718.96

b.

$224,477,758.80

c.

$186,111,543.91

d.

$198,045,418.96

e.

$470,757,277.03