QUESTION 1 [25 MARKS (a) Suppose an investment account pays 42% interest rate per annum compounded continuously. How long does it take for an entity to see its $1 million investment quadruple to $4 million? [6 marks] (b) An entity intends to raise $100 million after exactly three years from now. It currently has $12 million that it intends to initially deposit in an account with a local financial institution now. The fund pays 52% interest rate per annum compounded weekly. Calculate the instalment that the entity has to deposit at the beginning of every week in order to raise the required amount. [9 marks] (c) An investor consults you, an Investment Advisor, to construct an optimal two-asset portfolio out of Asset Theta () and Asset Omega () with the following measures of risk generated by a computer program: Calculate: (i) The optimal weights of the two-asset portfolio (W and W). [7 Marks] (ii) The resultant Portfolio Variance (P2). [3 Marks] [Total 25 Marks] QUESTION 2 [25 MARKS] (a) The following tabulation relates to a semi-annually compounded $1,000 bond instrument's first half-vear and final half-year of amortisation: CS CamScan 1 By populating the above table, identify the following five characteristics of the above bond instrument. (i) Intrinsic value or theoretical price at Period 0 (in \$) (ii) Yield to Maturity per annum (in \%) (iii) Time to Maturity (in years) (iv) Par Value (in \$) (v) Annual Coupon Rate per annum (in \%) [15 marks] (b) K Ltd's characterstic line has been observed to be defined by the linear equation Rk=0.043+0.9Rm after the entity's share returns have been regressed against the Stock Exchange's corresponding returns overtime using the Ordinary Least Squares (OLS) technique. The stock market rate of return is 18% whilst the market risk premium stands at 8%. The company's share is currently trading at $45 cum-div and $38 ex-div. The entity generated a Return on Equity of 14% and a dividend payout ratio of 50%. REQUIRED: Calculate K Ltd's theoretical price or intrinsic value per share. [10 marks] [Total 25 Marks]