Share Markets

1. After the initial public offerings (IPOs), any subsequent issues of a company through share placements or right issues are called secondary public offerings or seasoned equity offerings. Would the secondary public offerings be a primary or secondary market transaction? Explain in full the difference between a primary and secondary market, and why liquidity is important to a secondary share market. (4 marks)

2. Total risk consists of systematic risk and unsystematic risk. Distinguish between these two types of risk in the context of a portfolio of shares. (3 marks)

3. Company Zynetic declares a dividend of $3.00 at the end of the current year. The expected dividend growth of this share is 3% p.a. forever. With the required rate of return of 9.20% p.a., calculate the following:

the expected price of Zynetics share (2 marks)

the expected price of Zynetics share in four years time (i.e., Year 4) (3 marks)

4. Innovation Ltd.s stock has a beta of 0.8. The Treasury bills are currently returning 2.5% p.a. and the expected return of the market portfolio is 9% p.a.

Explain in words what beta is. Comment on the beta of Innovations stock relative to the market. (3 marks)

Calculate the required rate of return on Innovations shares. (3 marks)