Question 3 [20 marks]

(a) Yin Zhang bought an investment property last year for $350,000. This year the value of the property has gone up to $400,000. Yin Zhang also received $12,000 in rental income for the year. What is Yin Zhang's holding-period return on the investment? [7 marks]

(b) You have invested in Huawei Ltd whose dividend per share has grown 10% per annum for the past 10 years. Assume that Huawei's growth rate is expected to be maintained indefinitely. The latest dividend per share was 90 cents was yesterday. If your required rate of return is 15 per cent, what is the value of Huawei's shares? [7 marks]

(c) The Treasury bond rate is 3%, the average return on the All Ords Index is 12%, and ANZ has a beta of 1.2. According to the CAPM, what should be the required rate of return on ANZ shares? [7 marks]