a) Zam Mutual Fund a broad -based fund of stocks and other securities with an expected return of 15% and a volatility of 20%. Currently, the risk-free rate of interest is 3%. Their broker suggests that they add a real estate fund to their current portfolio. The real Page 4 of 5 estate fund has an expected return of 9%, a volatility of 35% and a correlation of 0.1 with the Zam Mutual Fund. Calculate the required return and recommend whether Zam Mutual Fund should add the real estate fund to its portfolio. (5 marks) b) ZamWater Plc a water and sewerage company is listed on Lusaka Stock Exchange (LUSE). ZamWater services the Chongwe City area. ZamWater plans to pay K2.36 per share in dividends in the coming year. If its equity cost of capital is 7.5% and dividends are expected to grow by 1.5% per year in the future, estimate the value of ZamWater's (5 marks) stock. c) MP Cellular Ple is a Zambian cellular telephone service provider that reported net income of K250 million for the most recent fiscal year. The firm had depreciation expenses of K100 million, capital expenditure of K200 million and no interest expenses. Working capital increased by K10 million. Calculate the free cash flow for MP Cellular Ple for the most recent fiscal year. (5 marks) a) Zam Mutual Fund a broad -based fund of stocks and other securities with an expected return of 15% and a volatility of 20%. Currently, the risk-free rate of interest is 3%. Their broker suggests that they add a real estate fund to their current portfolio. The real Page 4 of 5 estate fund has an expected return of 9%, a volatility of 35% and a correlation of 0.1 with the Zam Mutual Fund. Calculate the required return and recommend whether Zam Mutual Fund should add the real estate fund to its portfolio. (5 marks) b) ZamWater Plc a water and sewerage company is listed on Lusaka Stock Exchange (LUSE). ZamWater services the Chongwe City area. ZamWater plans to pay K2.36 per share in dividends in the coming year. If its equity cost of capital is 7.5% and dividends are expected to grow by 1.5% per year in the future, estimate the value of ZamWater's (5 marks) stock. c) MP Cellular Ple is a Zambian cellular telephone service provider that reported net income of K250 million for the most recent fiscal year. The firm had depreciation expenses of K100 million, capital expenditure of K200 million and no interest expenses. Working capital increased by K10 million. Calculate the free cash flow for MP Cellular Ple for the most recent fiscal year
