Question 10 a). Anna is considering investing in a bond currently selling in the market for 875. The bond has 4 years to mature, a 1000 GHS face value and a 7%coupon rate. The next annual interest payment is due one year from today. The appropriate discount rate for the securities of similar risk is 10%. Required: i). Estimate the intrinsic value of the bond. Based on the result of this estimation, should Ann purchase the bond? Explain. (3 marks) ii). Estimate the yield-to-maturity of the bond. Based on the result of this estimation, should Ann purchase the bond? Explain. (3 marks) b). With the aid of appropriate diagram(s) explain the Markowitz portfolio theory. (6 marks) c) The following data relates to the ordinary shares of T&M Company Ltd, Current market price, 31 December 2018 GI&250 Dividend per share, 2018 GH3 Expected growth rate in dividends and carings 10% pa Average market returns 10% pa Risk-free rate of return 4% Beta factor of T&M equity shares 1.40 Required Using the information to answer the following questions 1. What is the estimated cost of equity using the dividend growth model? ii. What is the estimated cost of cquity using the capital asset pricing model? (7 marks) c). Kofi Oteng is a portfolio manager. He is currently considering a portfolios whose expected returns, betas and standard deviations are given below. The risk-free rate is 3%, Portfolio Expected Return (%) Beta Standard Deviation (%) 1 8 1.3 8.8 2 18 2.0) 12.4 3 16 1.4 10.1 7 0.6 0.9 5 13 6.5 Market 10 1,0 5.0 portfolio 4 a. b. What is the required rate of return of portfolio 3, according to the CAPM? Which portfolios are overpriced? Which portfolios are underpriced? (6 marks) (Total 25 marks) c. END OF QUESTIONS 7 | Page