Adusa Company has been in business many years ago. The company is hoping to obtain financing for its upcoming project and wishes to hold on to this money for as long as the business exist, not as a loan though. In considering the options available and as first timers on the financial markets, they were advised by Urata Investment Bank Ltd, who took charge of the processing for the attainment of the finance. With a consistent dividend payment and a good share price on the market, Adusa finds its self among the top ranked on the local stock market. 

 

After 6 years of experiencing the organized market as a public company, Adusa Company is back on the market to raise additional financing to boost operations on the Olumba road construction, a contract they won due to links with the government and the fact that they could pre-finance projects, but this time, it is looking for an institutional investor (since there is none in their existing shareholder(s) profile) to subscribe to the equity capital they intend to raise. 

 

Kwame and Jojo are co-workers with Adusa company and have been saving part of their salaries in their bank accounts. It is becoming difficult to prevent themselves from spending this savings, so they are thinking of trading on financial markets.  Jojo is risk averse and not too comfortable with the price volatility of stock market(s). Kwame loves risk and is looking forward to challenging himself for higher yield. The stock market is open with diverse options and these friends are game to trade. 

1. What unit of money supply is Adusa  Company representing               2 mark
2. As the head of investment banking unit of Urata Bank, explain in detail to Adusa Company the equity offering available to augment their financing.    5 marks c) Which market would be appropriate for Adusa Company in this offer?  2 marks

4. Outline any three(3) functions performed by institutions in the category of Urata Investment

        Bank in the financial market                                                                         6 marks

5. What is the appropriate means for Adusa Company in their second attempt at raising equity financing considering the fact that they wanted an institutional buyer?  3 marks f) Explain this mode or means of raising equity capital    3 marks

7. Which type of financial instrument would be appropriate for Jojo                    2 marks
8. Which type of financial instrument would be appropriate for Kwame    2 marks

(Total 25 marks)

Question 2 

a). Write brief notes on the new tier system of the pension scheme operating in Ghana 

                                                                                                                         6 marks  

b). Explain the economic significance of rural banks to the economy?                  10 marks 

c). Enumerate the specific functions of the Bank of Ghana as enshrined in the Bank of Ghana Act

612 of 2002.                                                                                                      9 marks 

                                                                                                   (Total 25 marks)  Question 3 

a). Under what condition do we say a financial market is efficient? Distinguish between weak

and semi-strong form efficiency.                                                                         5 marks 

b). Explain any five (5) ways a company can raise equity capital in the financial market. 

                                                                                                                         10 marks 

c). One of the ways in which the government can finance its fiscal deficit is to borrow funds through the domestic loanable fund market. Explain how this deficit financing strategy of the government can crowd out the domestic private sector and increase interest rate.    10 marks

 (Total 25 marks) 

Question 4 

a). Elikplim Atayo took a loan facility of ¢1,000,000 from Amegbletor Bank ltd. He agreed to repay the loan monthly over a period of ten years. The interest charged by the bank is 6% per year, compounded monthly. If Elikplim Atayo repays the loan at the end of each month, Calculate the amount Elikplim will pay on monthly for the settlement of the loan.   5 marks

 

b). GCB Ltd issued 10m of new bonds with ¢1000 face value. The bonds have 10 years to maturity and carries 5% coupon rate. If the rate of return is 6%, how much is the corporation

borrowing? What type of bond is this?                                                                 7 Marks 

c). Mr. Adomako and Mr. Bonsu are vice presidents of Databank Mutual Insurance Company and co-directors of the company’s pension fund management division. An important new client, the Ghana Municipal Assembly Alliance, has requested that Databank present an investment seminar to the mayors of the represented cities, and Mr. Adomako and Mr. Bonsu who will make the actual presentation, have asked you to help them by answering the following question.

What are the key features of a bond as compared to a stock?                                8 marks          

d). Sims Ltd has just announced a dividend of ¢10 on its ordinary shares. Given that dividends are expected to grow at a constant rate of 10 percent over a long period of time and the investor’s required return is 14 percent? Using the dividend valuation  model, calculate a fair price for Sims

Ltd equity share.                                                                                                 5 marks 

(Total 25 marks) 

Question 5

 a). Akua intends to save 1,000 a year for her retirement until she is 55 years old, at this age, she will stop paying into the account, though she will retire at 65. If the retirement account earns 10% interest per year, how much will Akua have saved at age 65? She is 35 years at the moment.

                                                                                                                          

b). Financial markets and its institutions are seen as the central nervous system of an economy and must be regulated at all times. Discuss the key roles played by financial markets, and outline