QUESTION

Alan, a chartered financial analyst (CFA), is willing to invest two stocks, Yoyo stock and Zizi stock. He has collected the data on both stocks from Bursa Malaysia. The data as follows:

The beta for Yoyo stock and Zizi stock are 1.5 and 1.15 respectively. Alan plan to invest 45% in Yoyo stock and the remainder in Zizi stock. Yoyo stock is preferred stock while Zizi stock is a common stock. The treasury bills rate is at 1.75% and the market risk premium is 8%.

Yoyo stock dividend is RM1.20 per share and Zizi stock recently paid dividend is RM1.20 and the growth rate of dividend is 8%. Market price for Yoyo is RM14 and Zizi is RM24.

Required:

11. What would be the price of Zizi 6 years from now?

A. RM10.95. B. RM12.95. C. RM19.05. D. RM15.25.

12. Which stock is worth to invest?

A. Yoyo stock. B. Zizi stock. C. Both stocks. D. None.

13. What is the correlation for both stocks?

A. Negative correlation means both are opposite directions. B. Positive correlation means both are opposite directions. C. Negative correlation means both are same directions. D. Positive correlation means both are same directions.

14. From beta portfolio and beta for each stock, which are more volatile?

A. Yoyo stocks. B. Zizi stocks. C. Portfolio. D. None.

15. Which stock is more liquid?

A. Yoyo stock. B. Zizi stock. C. Both stocks. D. None.

State of Economy Recession Normal Boom Probability 0.35 040 0.25 Stock Yoyo Return (%) 19 28 23 Stock Zizi Return (%) 31 24 17 State of Economy Recession Normal Boom Probability 0.35 040 0.25 Stock Yoyo Return (%) 19 28 23 Stock Zizi Return (%) 31 24 17