Describe and discuss the various efficient market theories and hypothesis in a developing economy like Kenya. [8 marks]

b) Company XYZ ltd is considering investing in portfolio of two assets in the proportions of 40% and 60% respectively. The estimated returns under the various states of nature are shown below.

State of economy Probability Return on asset AReturn on asset BMarket return Recession 0.38101214Average 0.32141012Boom .3016810

Required:

1. The expected returns on asset A b and the market. [2 marks]
2. The standard deviation of the portfolio. [1.5 marks]
3. The expected return of the portfolio. [1.5 marks]
4. The covariance between A and the market return. [2 marks]

Question Two

a) Kitenato company ltd is a an invested organization based in Kitale town. In 2015 the organization invested 2500 to earn perpetual cash flows for 5 years. The following were the annual cash flows arising from the investment.

Year 1 900Year 2 800 Year 3 700Year 4 600 Year 5 500

The management of the company held annually at the beginning of 2015 and agreed that the opportunity cost of capital would be 10%.

Required:

Decide using the NPV method of project appraisal the viability of this project. [7.5 marks]

Question Three

a) JKUAT ltd deposited $ 10,000,000 on the dollar account and expected to withdraw the whole amount after five years at an interest rate o f10% per annum.

Required:

The amount he will withdraw upon the expiry of period above on compounding and interest basis if there is a premium of 5% on the interest rate. [7.5 marks]

b) Explain the practicability of financial management in the *** times. [7.5 marks]

Question Four

a) Explain the following in relation to financial management principles and practices in JKUAT university Kitale CBD campus.

1. Profitability index [3 marks]
2. Payback period [3 marks]
3. Internal rate of return [3 marks]
4. Accounting rate of return [3 marks]
5. Net present value [3 marks]

Question Five

You recently went through an interview for financial director of a multinational organization. on arrival and upon perusal of the financial documents, you realize that your predecessor hadnt profound understanding of the formula A=c+l.

Assuming that C was missing and A and L are known, use a well elaborate example to ascertain C. Limited yourself to 15 TB items to handle the above problem.