QUESTION 1 (25 MARKS)
a) Corus Berhad is interested to invest in bonds. Currently, the financial manager is evaluating both Bond A and Bond B. Bond A pays 8 percent coupon semi-annually and matures in 12 years. Bond B pays 7 percent coupon annually having a maturity period of 13 years. Determine the value of each bond if the current market yield for
both bonds is 8 percent.
(5 marks)
b) Below is a partial balance sheet of WOU Berhad
Common stock (RM 2) RM40,000,000
Premium RM25,000,000
Retained earnings RM20,000,000
Total Net Worth RM85,000,000
The company declared a 2 for 1 stock split.
i) Calculate the new par value.
(3 marks)
ii) Calculate the new numbers of share outstanding.
(3 marks)
c) Elaborate any four (4) reasons for the company to declare stock dividend.
(8 marks)
d) Partial Balance Sheet of Daisy Bhd. as at 31 December 2018
Capital Position RM
Common stock (RM5) 3,000,000
Premium 2,000,000
Retained Earnings 5,000,000
Total Net Worth 10,000,000
The current market price for Daisy Berhad stock is RM10. Show the effect on the company’s balance sheet if the company declares a 20 percent stock dividend.
(6 marks)
QUESTION 2 (25 MARKS)
a) Explain five (5) advantages of preferred stock.
(5 marks)
b) Elaborate any three (3) features of common stock.
(6 marks)
c) Describe the salient characteristics of bond.
(5 marks)
d) Home Company paid an annual dividend of RM0.90 per share this year. The company expects that the dividend will grow an annual rate of 15 percent for the next five years and then drop to a gradual growth rate of 7 percent indefinitely. The required rate of return is 10 percent and the share is currently trading at RM48.
i) Calculate the intrinsic value of the share today.
(5 marks)
ii) Justify whether you would buy the share.
(4 marks)
QUESTION 3 (25 MARKS)
Evaluate the three mutual funds using Sharpe and Treynor measure. Given the risk-free rate is 5%.
Financial Assets Average Return Standard
Deviation
Beta
Fund A 22% 25% 1.2
Fund B 10% 8% 0.4
Fund C 17% 16% 1.0
Market Portfolio
(FTSE KLCI)
15% 12% 1.0
a) Calculate the following measures for each fund and market portfolio:
i) Sharpe measure
(8 marks)
ii) Treynor measure
(8 marks)
b) Rank the portfolios using the both measures and discuss the differences you find in the ranking.
(9 marks)
QUESTION 4 (25 MARKS)
a) You are a senior management position in a leading international funds management firm. Your Board of Directors required you to analyse FOUR (4) benefits of allocating funds across various countries and geographical regions based on two market dimensions:
i) Developed countries.
(12 Marks)
ii) Emerging markets.
(13 Marks)
