Question 1.

a). The interest rate that a particular investment is priced at is 14% p.a convertible monthly. The risk premium for this investment is 3.5% p.a. Calculate the risk free rate that applies to this investment. ?

b). A share is priced at R571.05. The last dividend, paid one year ago, was R32. Dividends are expected to grow at 4.5%. If the risk free rate is 8% p.a., calculate the risk premium used to price this share.

c). A corporate bond pays coupons half yearly, and has a term of 18 years. The bond is then redeemed at par. If the current price of this bond is R121.61 per R100 nominal, the risk free rate is 7.2%p.a. and the annual risk premium is 2.5%, calculate the annual coupon rate of this bond. ?

d). An investment is expected to pay an income of R450 every 2 years, starting 18 months from now. The investment will pay out 30 such instalments, and then, with the last instalment, pay an additional R1000. If the risk free rate is 1% per month, and the risk premium is 3.2% p.a., calculate the value you would place on this investment. ?