QUESTION ONE - COMPULSORY QUESTION Mercy bought a 14% Sh 100,000 -year bond on 1 - January 2016. Interest was paid on quarterly basis. At the date of issue, the market interest rate was 18%. Coupons are reinvested at 9%. She sold the bond on 31s1 December 2020 to yield 12% Required a. Identify possible reasons why an investor may retire the bond before its maturity date. 6 marks b. Compute total return (and its breakdown) generated by Mercy both in absolute value and in percentage. 14 marks QUESTION TWO a. Valuation of shares is more appropriate using discounted cashflows methods. Discuss why it's the preferred approach and steps involved in the valuation process. 8 marks b. Explain four key roles played by equity market in an economy 8 marks QUESTION THREE a. Despite earning high employment incomes, few people are able to enjoy all the stages of individual investor life cycle. Describe practical reasons why this is the case and suggest possible reasons on how it should be addressed. 8 marks b. Discuss key steps in investment management practices. A Miny yewew 8 marks QUESTION FOUR a. Differentiate a cautious investor from a methodical investor. in m b. Moses intends to invest Ksh2,000,000 in shares and bond quoted in Nairobi security exchange for 12 months. Though not a financial market expert, he has quoted the shares and bonds that should be included in his portfolio. Describe likely constraints that Moses pose to his portfolio manager and his portfolio. -lover if ellike 8 marks QUESTION ONE - COMPULSORY QUESTION Mercy bought a 14% Sh 100,000 -year bond on 1 - January 2016. Interest was paid on quarterly basis. At the date of issue, the market interest rate was 18%. Coupons are reinvested at 9%. She sold the bond on 31s1 December 2020 to yield 12% Required a. Identify possible reasons why an investor may retire the bond before its maturity date. 6 marks b. Compute total return (and its breakdown) generated by Mercy both in absolute value and in percentage. 14 marks QUESTION TWO a. Valuation of shares is more appropriate using discounted cashflows methods. Discuss why it's the preferred approach and steps involved in the valuation process. 8 marks b. Explain four key roles played by equity market in an economy 8 marks QUESTION THREE a. Despite earning high employment incomes, few people are able to enjoy all the stages of individual investor life cycle. Describe practical reasons why this is the case and suggest possible reasons on how it should be addressed. 8 marks b. Discuss key steps in investment management practices. A Miny yewew 8 marks QUESTION FOUR a. Differentiate a cautious investor from a methodical investor. in m b. Moses intends to invest Ksh2,000,000 in shares and bond quoted in Nairobi security exchange for 12 months. Though not a financial market expert, he has quoted the shares and bonds that should be included in his portfolio. Describe likely constraints that Moses pose to his portfolio manager and his portfolio. -lover if ellike 8 marks
