Essentials of FM

Question1

1.1. Briefly discuss three key functions of the financial market in facilitating the trading of financial assets (6)

1.2. Prestige Retailers Ltd is a retail company registered in the stock market. The company has just paid an annual dividend of R5 per share. The dividend per share is expected to grow at 10% per year for the next three years, and at 5% thereafter. Prestige Retailers Ltd.s beta is 10% lesser than the market beta. The stock markets expected return and the risk-free rates are 16% and 6%, respectively. Use the information for Prestige Retailers Ltd to answer the questions that follow given the required return of the company is 20%.

1.2.1. Using the CAPM calculates the expected return of Prestige Retailers Ltd. (4)

1.2.2. Calculate the market value (intrinsic value) of Prestige Retailers Ltd. (5)