Question
1. Zumba plc has excess earnings this year and decide to pay a dividend of 10 in year 1 and expects this grow constantly at
1. Zumba plc has excess earnings this year and decide to pay a dividend of 10 in year 1 and expects this grow constantly at 4%. Zumba has a discount rate of 12%, what is the share price? (10 marks)
2. Mini Sweet Gelato plc. analysed the report from scientists who predict the weather and climate in 2021 as follows. The probability of a hot summer is 0.3. The probability of a moderately warm summer is 0.2, whereas the probability of a wet and cold summer is 0.5. If a hot summer occurs then the return on shares in the Gelato manufacturing company will be 60 per cent. If moderately warm the return will be 30 per cent, and if cold 2 per cent. What is the expected return? (10 marks)
3. You have two mutual funds in your portfolio with different risk levels. Douceurs generates a return of 20% and Cimes generates a return of 30%. The associate risk for Douceurs is 5 and 40 for Cimes. The risk-free rate is 10%, which would be your choice and why? (10 marks)
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