2. You have OMR 5,000 to invest in shares of A or B the expected returns and standard deviations of which are as follows. A R 17 25 6 B 10 Required: a. Calculate expected return and standard deviation from a portfolio consisting of 50 per cent of A and 50 per cent of B assuming shares in A and B are perfectly negatively correlated. (12 marks) b. What is meant by coefficient of variation? Calculate coefficient of variation for shares in A and B and decide which of the two shares you would prefer to investment in and why? Briefly explain. (125 - 150 words) (8 marks) 3. Oman Aluminium Company is trying to introduce an improved method of assessing investment projects using discounted cash flow techniques. For this it has to obtain a cost of capital to use as a discount rate. The finance department has assembled the following information: - The company has an equity beta of 2.10, which may be taken as the appropriate adjustment to the average risk premium. The yield on risk-free government securities is 6 per cent and the historic premium above the risk-free rate is estimated at 5.5 per cent for shares. The market value of the firm's equity is thrice the value of its debt. The cost of borrowed money to the company is estimated at 9 per cent (before tax shield benefits). Corporation tax is 35 per cent. Required: a. Estimate the equity cost of capital using CAPM. (4 marks) b. Calculate cost of debt after tax debt. (3 marks) c. Create an estimate of the weighted average cost of capital (WACC). (8 marks) 4. National Pharmaceutical SAOC issued two bonds. Bond 1 has an annual coupon rate of 7 per cent and Bond 2 has an annual coupon of 11 per cent. Bond 1 matures in three years and Bond 2 matures in five years. Both bonds have a par value of OMR 100. Assume that the yield to maturity on bonds of this risk class is 9 per cent. Required: a. How much would you pay for the bond 1 and Bond 2? (10 marks) b What is the flat yield on bond 1 if it is selling at OMR 103? (2 marks) What is the flat yield on bond 2 if it is selling at OMR 97? (2 marks) d. What is meant by flat yield? Why do we calculate flat yield? (125-150 words) 14 marks) C. based on your answers in band, which bond is offering better flat yield and why? Briefly explain. (75 100 words) (2 marks) 5. Answer the following questions: (Note: 125 - 150 words for each of the following parts a. What is the meant beta (8)? How would you interpret if 6=1, B>1 and B