REVISION QUESTION

1. There are two types of stocks and three states of economy.

State of economy Probability of state of Rate of return if state occurs

economy Stock P Stock T
Recession 0.30 (17%) 12%
Normal 0.40 25% 15%
Boom 0.30 35% 40%

a. Calculate the expected rate of return for each stock.(4 marks)

b. Calculate the standard deviation of expected returns for each stock. (5 marks)
c. Calculate the coefficient of variation for each stock. (4 marks)
d. Determine less risky stock with appropriate justification. (2 marks)

December 2015

2. Fatimah’s share sold at RM32 per share and the latest 12 months earning is RM5 per share.
a. Calculate Fatimah’s current P/E ratio. (3 marks)
b. Determine the projected price for next year if her earning grows by 10% per year
and the P/E ratio remain unchanged. (3 marks)
c. Dividend payout ratio is 50% and the expected grow rate of dividend is 10%.
Calculate the new value of Fatimah’s share if her required rate of return is 16%. (4
marks)

December 2015

CHAPTER 4

1. A RM 1000 par value, 9% bond is selling for RM 1010.

i. What is the coupon rate? (1 marks)

ii. What is current yield of the bond? (3 marks)

2. A firm has decided to issue a RM 1000 par value bond that matures in 10 years. The
bond will pay a 10% per annum coupon rate. If investor want 12% rate of return,
what would be the purchase price of the bond? (4 marks)

3. A bond with par value of RM 1000 and an annual coupon rate of 9% matures in 15
years. Find the purchase price if the investor’s required rate of return is 14%.

(4 marks)
4. Determine the value of 15 year bond with 9% coupon paid semiannually to yield at
market interest rate of 10%.The par value is RM 1000. (4 marks)
 5. A Juicy Fruit bond has a 10% coupon rate and RM 1000 face value. Interest is paid
semi- annually and the bonds have 20 years to maturity.

i. If investors require a 14% yield, what is the purchase price of the bond?

(4 marks)

6. An 8%, 10 year bond with a par value of RM 1,000 pays interest annually. What is
the purchase price if your required rate of return is 9%? (4 marks)

7. ABC bonds with face value of RM 1000 are selling for RM 1100. The bonds carry a
coupon rate of 9% and mature in ten years. Assuming that you buy the bond and hold
it until maturity, what is your expected YTM? (4 marks)

8. Compute YTM for an 18 year, 6% coupon bond selling for RM 700, if the coupon
paid:

a. Annually, and

b. Semiannually.

The par value for this bond is RM 1000. (4 marks)

9. The price of a bond is RM 920 with a face value of RM 1000 which is the face value
of many bonds. Assume that the annual coupons are RM 100, which is a 10% coupon
rate, and that there are 10 years remaining until maturity. Calculate YTM for this
bond. (4 marks)

10. Assume a 10%, $100,000 bond was issued at $96,000. The life is five years. The
effective rate is: ( 4 marks)

CHAPTER 2
QUESTION 1
Jessica bought 1,000 shares of common stock at RM5.50 on 1 December 2012. She kept it for about a
year and decided to sell on 30 November 2013 which is valued at RM7.50. During the year Jessica held
the share, she received dividend of 6% of the par value RM1 per share. Calculate her total return during
this period of investment.
QUESTION 2

The table shows data of an investment in BONSTON Berhad. Answer the question i and ii
based on the table below.
 Year Beginning Value Ending value
RM RM

1 1.00 2.00

2 2.00 1.00
Assuming no dividend income during the holding period.

i. Find the value of HPR and HPY for the above table.

ii. Calculate the Arithmetic mean and the Geometric Mean

QUESTION 3

The data collected from Avenue Broking are as follows:

Economic Condition Probability Possible return

Boom 0.35 0.20
Moderate 0.40 0.30
Recession 0.25 -0.10

Calculate the expected rates of return.

QUESTION 4

Given the possible return with probability for Lulu stock below:

States of nature Probability of Occurrence Possible Return

1 0.2 0.20
2 0.4 0.05
3 0.3 -0.04
4 0.1 0.12

Compute the expected return and standard deviation.

CHAPTER 6

QUESTION 1
Suppose that you expect Solar Bhd to pay a RM3 dividend next year and the price of Solar stock to be
RM17 in one year. The required rate of return for Solar stock is 12%. What is your estimate of the value
of Solar stock?

QUESTION 2

You plan to purchase a share that you expect will pay a dividend of RM 1.00 per share in
year 1, RM 1.25 per share in year 2 and RM 1.50 per share in year 3 after which you plan to
sell the shares for RM 15.00 each. If your required rate of return is 15% find the value of the
share today.
QUESTION 3
Jony Bhd’s dividends are expected to grow at a rate of 30% per year for the next three years. At the
end of 3 years, Jony growth is expected to grow at 6% per year. Jony has just paid a dividend of RM
0.80 per share. The required rate for Jony common stock is 15%. What is the value of Jony common
stock?
QUESTION 4
For 2012, Bunga Bhd earned profit after tax and available for common stockholders of RM50 million.
The company currently has 150 million shares in issue and each share has a current price of RM6. What
is the prevailing earning multiplier for Bunga? (P/E Ratio).