Explain the following questions
QT. Your rate of return expectations for Stock A and Stock B during the next year are: STOCK A Possible Rate of Return Probability 0.10 0.25 0.00 0.15 0.10 0.35 0.25 0.25 STOCK B Possible Rate of Return Probability 0.60 0.15 0.30 0.10 0.10 0.05 0.20 0.40 0.40 0.20 0.80 0.10 (a) Compute the expected return [EfR] on this investment, the variance of this return (o2), and its standard deviation (o). (b) Under what conditions can the standard deviation be used to measure the relative risk of two investments? (c) Under what conditions must the coefcient of variation be used to measure the relative risk of two investments? VALUATION OF FINANCIAL ASSETS RE QUESTION 18 3) Utanisi Lid. is experiencing a period of rapid growth, Earnings and dividends are expected grow at the rate of 15% per annum during the next two years, 13% in the third year and i y constant rate of 6% per annum thereafter, The last dividend paid by the company was she jk The company's required rate of return is 12% Required: The value of the equity shares of the company today. The dividend yield and capital gains yield and total return for year I and year 2. b) Pentagon Lid. issued a 10 year bond two years ago. The bond has a coupon rate of 13% pet payable semi annually. Upon inaturity, it will be redeemed at sh. 102 for every Sh. 100 par. Required: The highest amount you can pay to acquire the bond today if the required rate of return is 14% DECEMBER 2010 QUESTION ONE B HAVE QUESTION 19 c) PDS Lts. is a medium sized company quoted on the stock exchange . The company's year end by December . The following data relate to the company's earnings per share(EPS) and dividend share (DPS)for the last five years. Year ended 31 December: 2009 2008 2007 2006 2005 EPS (Shs) 14.0 13.6 13.1 12.7 12.2 DPS (Shs) 8.2 8.1 7.9 7.8 7.7 If the current dividend policy is maintained the directors of PDS Ltd. expect that annual growth earnings and dividend will be the same as the average growth in earnings over the past four years PDS Ltd which is wholly equity financed is reluctant to obtain debt to finance its growth opportunities. The company is therefore considering a change in its dividend policy where 50% its earnings will be retained to finance identified projects which are estimated to have an average post tax return of 15% The company's cost of capital is 12% Required: The share of the company which might be expected by the market 1) If the company does not announce the change of dividend policy If the company announces the change in dividend policy DECEMBER 2010 QUESTION ONE Bar QUESTION 20 b) Ushindi Lid, has recently issued a sh. 1,000, 9 percent convertible bond. The bond can be converted into 9 ordinary shares at the end of the five years. The current market price of the sha Section 3 F.MWhich of the following are examples of economic indicators? Check all that apply. The economy's inflation rate The economy's unemployment rate The economy's gross domestic product Economic indicators can vary depending on the frequency of their reporting-such as monthly, quarterly, or annually-and their relationship with the economy. What are procyclical, countercyclical, and leading economic indicators? The value of procyclical indicator moves in the same direction as the economy's condition, whereas the value of a countercyclical indicator moves in the opposite direction as the economy's condition. In contrast, the value of a leading _ indicator changes before the economy's condition improves or worsens. Which of the following statements regarding procyclical, countercyclical, and leading economic indicators is correct? Check all that apply. An example of a procyclical indicator is the number of employees on nonagricultural payrolls. The fact that the unemployment rate increases as the economy's condition worsens illustrates why the unemployment rate is a countercyclical indicator. Examples of leading economic indicators are building permits, the weekly first-time claims for unemployment insurance, and factory orders.A1. Assume that Canada is an importer of televisions and that there are no trade restrictions. Canadian con- sumers buy 1 million televisions per year, of which 400 000 are produced domestically and 600 000 are imported. a. Suppose that a technological advance among Japa- nese television manufacturers causes the world price of televisions to fall by $100. Draw a graph to show how this change affects the welfare of Canadian consumers and Canadian producers and how it affects total surplus in Canada. b. After the fall in price, consumers buy 1.2 million televisions, of which 200 000 are produced domes- tically and 1 million are imported. Calculate the change in consumer surplus, producer surplus, and total surplus from the price reduction. c. If the government responded by putting a $100 tariff on imported televisions, what would this do? Calculate the revenue that would be raised and the deadweight loss. Would it be a good policy from the standpoint of Canadian welfare? Who might support the policy? Who might oppose it? d. Suppose that the fall in price is attributable not to technological advance but to a $100 per television subsidy from the Japanese government to Japanese industry. How would this affect your analysis
