Question 1

Question 2

Question 3 and Question 4

Question 5

this will be Introduction to Finance

Question 1 [30 MARKS] Warren Bezos, a fixed-income portfolio manager based in Spain, is looking to the purchase of a government bond. Warren Bezos decides to evaluate three portfolios for implementing his investment in government bonds. Before choosing one of the three bond portfolios, Warren Bezos wants to know the return in term of the yield. Below table is the details of all bond with par value for each bond is RM1,000. Bond B Maturity 12 years 10 years 8 years Coupon rate 10% 7% 5% Payment type Annually Annually Semiannually Price traded 650 820 900 a) Calculate all THREE (3) bond's yield to maturity and which bond portfolio will Warren Bezos choose. (11 MARKS) b) Calculate the value of bond A if the required rate of return is 7%. (4 MARKS) c) Differentiate between the yield to maturity and the current yield. (9 MARKS) d) Bond rating agencies base their quality ratings largely on an analysis of the level and trend of some of the issuer's financial ratios. Elaborate any THREE (3) factors used by rating companies to do the rating valuation. (6 MARKS) PARITANA RALAND X ats est Paper Question X AseryUser/Downloads/1105%20Resit.Paper Question.pdf Home Ches.com x Top Glove Berhad is in the process of choosing the better of two equal mutually exclusive capital expenditures projects and Z. The initial investment for Project S is RMM000, whereas for Project is RM 500. Projects generates cash inflows of RM 14,000 per year for 6 years. The relevant cash flows for project are shown in the following table Year Yew1 Year 2 Year Year 4 Project Cashindows 13000 14000 13.000 12,000 Net Page 114 100 TO DOO The required retum for both projects is 10 al Calculatech project's packed 16 MARS tal Calculate the nethet value for each project (IOMARKS Calculate the profitability index 2 MARS 2 MARS di Based on each on which will pouchy Question 2 [20 MARKS] Top Glove Berhad is in the process of choosing the better of two equal-risk mutually exclusive capital expenditures projects S and Z. The initial investment for Project S is RM38,000, whereas for Project Z is RM36,500. Project S generates cash inflows of RM14,000 per year for 6 years. The relevant cash flows for project Z are shown in the following table: Year Year 1 Year 2 Year 3 Year 4 Project Z Cash Inflows 13,000 14,000 13,000 12,000 Nilai University/Academic/Set 1 Page 1 of 4 Year 5 Year 6 11,000 10,000 The required return for both projects is 16% a) Calculate each project's payback period. (6 MARKS) Year 5 Year 6 11,000 10,000 The required return for both projects is 16% a) Calculate each project's payback period. (6 MARKS) b) Calculate the net present value (NPV) for each project. (10 MARKS) c) Calculate the profitability index. (2 MARKS) d) Based on each criterion, which investment will you choose? Why? (2 MARKS) Question 3 [18 MARKS] a) Based on CAPM, total risk is made up of both systematic risk (non-diversifiable risk) and unsystematic risk (diversifiable risk). Differentiate between the systematic and unsystematic risk with example. (8 MARKS) b) Kossan Berhad is one of the glove company in Malaysia. Kossan Berhad is evaluating a Security XYZ The information of the Security XYZ is as low: (10 MARKS) Rate of return 0.30 0.15 0.20 0.15 Probability 0.20 0.30 0.40 0.50 Calculate standard deviation of Security B. Question 4 [8 MARKS] ABC Asset Management Company own a furniture portfolio consisting of the following stocks: Stock Beta Expected Return Liihen Poh Huat Homeriz Jay Corp Mieco Weight Percentage of Portfolio 12% 27 % 17 % 32% 2296 1.10 0.85 1.40 0.70 1.50 14% 13% 17% 11% 18% a) Calculate: 1) Expected return of the portfolio (4 MARKS) in) The portfolio beta (4 MARKS) Question 5 [24 MARKS] Assume now Nurdini has decided to hold the Penta Berhad's share for a period of four years. This makes the valuation of the share a little more complicated as Nurdini would need to estimate dividend streams for the for the 4-year holding period. The easiest method is to assume a constant dividend payout ratio and a constant growth of earnings into the future. The expected future dividend payments at the end of each year are: Year Dividend per share (RM) 1.22 2 1.28 3 1.34 1 4 141 Assume that Nurdini had estimated the future sale price of the share by projecting dividend growth rates 4 years from now as RM30 at the estimated at the end of Year 4. Furthermore, a firm is trying to estimate its required rate of return, and it has the following information. The firm has a beta of 0.80, the expected market return is 10 percent and the risk-free rate is 7 percent a) Compute the value of Penta Berhad's share by using multiple year holding period method. (11 MARKS) b) The constant dividend growth rate model means the firm's cash dividend grow by a constant rate each year. List SIX (6) constant growth model conditions. (6 MARKS) c Stock valuation has been carried out by the investor in order to determine the fair value of certain stock whether it is undervalued or overvalued. Certain companies will reward their shareholder by paying the dividend to them, but some companies don't allocate any dividend for their shareholder. Elaborate why stable company will pay the dividend for their shareholder but not the growth company. (7 MARKS) Answer ALL questions (100 MARKS) Question 1 [30 MARKS] Warren Bezos, a fixed-income portfolio manager based in Spain, is looking to the purchase of a government bond. Warren Bezos decides to evaluate three portfolios for implementing his investment in government bonds. Before choosing one of the three bond portfolios, Warren Bezos wants to know the return in term of the yield. Below table is the details of all bond with par value for each bond is RM1,000. Bond A B Maturity 12 years 10 years 8 years Coupon rate 10% 7% 5% Payment type Annually Annually Semiannually Price traded 650 820 900 a) Calculate all THREE (3) bond's yield to maturity and which bond portfolio will Warren Bezos choose (11 MARKS) b) Calculate the value of bond Aif the required rate of return is 7%. (4 MARKS) c) Differentiate between the yield to maturity and the current yield. (9 MARKS) d) Bond rating agencies base their quality ratings largely on an analysis of the level and trend of some of the issuer's financial ratios. Elaborate any THREE (3) factors used by rating companies to do the rating valuation. (6 MARKS) Question 1 [30 MARKS] Warren Bezos, a fixed-income portfolio manager based in Spain, is looking to the purchase of a government bond. Warren Bezos decides to evaluate three portfolios for implementing his investment in government bonds. Before choosing one of the three bond portfolios, Warren Bezos wants to know the return in term of the yield. Below table is the details of all bond with par value for each bond is RM1,000. Bond B Maturity 12 years 10 years 8 years Coupon rate 10% 7% 5% Payment type Annually Annually Semiannually Price traded 650 820 900 a) Calculate all THREE (3) bond's yield to maturity and which bond portfolio will Warren Bezos choose. (11 MARKS) b) Calculate the value of bond A if the required rate of return is 7%. (4 MARKS) c) Differentiate between the yield to maturity and the current yield. (9 MARKS) d) Bond rating agencies base their quality ratings largely on an analysis of the level and trend of some of the issuer's financial ratios. Elaborate any THREE (3) factors used by rating companies to do the rating valuation. (6 MARKS) PARITANA RALAND X ats est Paper Question X AseryUser/Downloads/1105%20Resit.Paper Question.pdf Home Ches.com x Top Glove Berhad is in the process of choosing the better of two equal mutually exclusive capital expenditures projects and Z. The initial investment for Project S is RMM000, whereas for Project is RM 500. Projects generates cash inflows of RM 14,000 per year for 6 years. The relevant cash flows for project are shown in the following table Year Yew1 Year 2 Year Year 4 Project Cashindows 13000 14000 13.000 12,000 Net Page 114 100 TO DOO The required retum for both projects is 10 al Calculatech project's packed 16 MARS tal Calculate the nethet value for each project (IOMARKS Calculate the profitability index 2 MARS 2 MARS di Based on each on which will pouchy Question 2 [20 MARKS] Top Glove Berhad is in the process of choosing the better of two equal-risk mutually exclusive capital expenditures projects S and Z. The initial investment for Project S is RM38,000, whereas for Project Z is RM36,500. Project S generates cash inflows of RM14,000 per year for 6 years. The relevant cash flows for project Z are shown in the following table: Year Year 1 Year 2 Year 3 Year 4 Project Z Cash Inflows 13,000 14,000 13,000 12,000 Nilai University/Academic/Set 1 Page 1 of 4 Year 5 Year 6 11,000 10,000 The required return for both projects is 16% a) Calculate each project's payback period. (6 MARKS) Year 5 Year 6 11,000 10,000 The required return for both projects is 16% a) Calculate each project's payback period. (6 MARKS) b) Calculate the net present value (NPV) for each project. (10 MARKS) c) Calculate the profitability index. (2 MARKS) d) Based on each criterion, which investment will you choose? Why? (2 MARKS) Question 3 [18 MARKS] a) Based on CAPM, total risk is made up of both systematic risk (non-diversifiable risk) and unsystematic risk (diversifiable risk). Differentiate between the systematic and unsystematic risk with example. (8 MARKS) b) Kossan Berhad is one of the glove company in Malaysia. Kossan Berhad is evaluating a Security XYZ The information of the Security XYZ is as low: (10 MARKS) Rate of return 0.30 0.15 0.20 0.15 Probability 0.20 0.30 0.40 0.50 Calculate standard deviation of Security B. Question 4 [8 MARKS] ABC Asset Management Company own a furniture portfolio consisting of the following stocks: Stock Beta Expected Return Liihen Poh Huat Homeriz Jay Corp Mieco Weight Percentage of Portfolio 12% 27 % 17 % 32% 2296 1.10 0.85 1.40 0.70 1.50 14% 13% 17% 11% 18% a) Calculate: 1) Expected return of the portfolio (4 MARKS) in) The portfolio beta (4 MARKS) Question 5 [24 MARKS] Assume now Nurdini has decided to hold the Penta Berhad's share for a period of four years. This makes the valuation of the share a little more complicated as Nurdini would need to estimate dividend streams for the for the 4-year holding period. The easiest method is to assume a constant dividend payout ratio and a constant growth of earnings into the future. The expected future dividend payments at the end of each year are: Year Dividend per share (RM) 1.22 2 1.28 3 1.34 1 4 141 Assume that Nurdini had estimated the future sale price of the share by projecting dividend growth rates 4 years from now as RM30 at the estimated at the end of Year 4. Furthermore, a firm is trying to estimate its required rate of return, and it has the following information. The firm has a beta of 0.80, the expected market return is 10 percent and the risk-free rate is 7 percent a) Compute the value of Penta Berhad's share by using multiple year holding period method. (11 MARKS) b) The constant dividend growth rate model means the firm's cash dividend grow by a constant rate each year. List SIX (6) constant growth model conditions. (6 MARKS) c Stock valuation has been carried out by the investor in order to determine the fair value of certain stock whether it is undervalued or overvalued. Certain companies will reward their shareholder by paying the dividend to them, but some companies don't allocate any dividend for their shareholder. Elaborate why stable company will pay the dividend for their shareholder but not the growth company. (7 MARKS) Answer ALL questions (100 MARKS) Question 1 [30 MARKS] Warren Bezos, a fixed-income portfolio manager based in Spain, is looking to the purchase of a government bond. Warren Bezos decides to evaluate three portfolios for implementing his investment in government bonds. Before choosing one of the three bond portfolios, Warren Bezos wants to know the return in term of the yield. Below table is the details of all bond with par value for each bond is RM1,000. Bond A B Maturity 12 years 10 years 8 years Coupon rate 10% 7% 5% Payment type Annually Annually Semiannually Price traded 650 820 900 a) Calculate all THREE (3) bond's yield to maturity and which bond portfolio will Warren Bezos choose (11 MARKS) b) Calculate the value of bond Aif the required rate of return is 7%. (4 MARKS) c) Differentiate between the yield to maturity and the current yield. (9 MARKS) d) Bond rating agencies base their quality ratings largely on an analysis of the level and trend of some of the issuer's financial ratios. Elaborate any THREE (3) factors used by rating companies to do the rating valuation. (6 MARKS)