Overall Practice Revision Question Set 01: Bond Pricing, Stock Valuation, and Investment Strategy

1 Overall Practice Revision Question Set 01 (Topic 1 to 4) 1 . With remaining 7 - ye ar to maturi ty, Promise Land bonds pay 8.5% coupon rate per year. Derive the price of its bond today if current yearly yield to maturity is 6.5 %. (T he bonds pay annual coupon payments). 2. Bravery share price i s $37.35. It intends to pay $2.80 on its next dividend and estim at es to grow at an annual constant rate of 10%. Find its required rate of return. 3. Decide risk premium of a n equity that promises market return 10 pe r cent, risk - free rate of return 2 percent, and beta of 1.5 . 4 . During last five periods, the periodic returns of a share are - 8%, 22%, 0%, 12% and 4%. Determine its average return and the standard d eviation of its return . 5. With table below on CWN stock , find its expected return and the standard deviat ion . Economy State Probability (%) Rate of Returns (%) Good 15 18 Normal 55 10 Bad ? - 5 6. A zero coupon bond has 8 - year maturity with face value of $1 00000, find its c urrent market price . The opportun ity cost of similar bon d in the current market is 7 .75%. 7. A Corporate bond matures in 20 years, pays inte rest semiannually, and with annual coupon rate of 4 .5 percent. If annu a l market yield of this bond is 3.8 percent, find its current price. 8. BMG F&B bond has 6 .5 percent coupon bonds that pay s i nterest semiannually. T h e current market price is $1,072.8 0. If the y ield to maturity is 7.8 percent, find its maturity year. 9 . Based on the t ab le below, d etermine the overall portfolio expected re turn. Economy Condition Probability (%) Rate of Returns (%) Good 2 5 20 Normal ? 12 Bad 30 - 8 2 1 0. ABC Ltd plan s to pay its next dividends a year from now at $1.50 per share . Market require s rate of return on such shares at 20%. The firm estimates a gro wth of 30 percent for the first three ye ars and then a growth rate of 12 percent for the following two years. After that, the company exp ects a constant - growth rate of 5 percent. Find th e current price of ABC share. 11. A portfolio comprised of $6,000 in s tock A and $4 ,000 in stock B as presented in the table below. If currently the economy is experiencing a bad period, determine the expected return of this portfolio. Economy State Probability (%) Stock A Returns (%) Stock B Returns (%) Good 15 20 5 Norma l 5 5 6 10 Bad 2 5 - 20 15 1 2 . Good Air Ltd estimates its stock with consta nt growth rate of dividends of 8 % and intends t o pay its next dividends at $2.8 0 per share. If the mark et required rate of return is 15%, find its estimated share value toda y. 1 3 . H Company share has a rate of return of 15.5 percent. It just paid an annual dividend of $1.80 a share and announ ced its dividends to grow by 4 percent each ye ar. Find th e market price of this share. 14 . T firm ordinary share sells for $32.5 0 a share and pays an annu al dividend that increases by 2 .5 p ercent annually. The market yield on this stock is 11.5 percent. Find the amount of the last di vidend paid. 1 5 . Tan Company offers a 12 - year coupon bond with semiannual payme nts. The yield to ma turity is 6 .85 percent a nd the bonds sell at 92 percent of par. Find its coupon rate. 1 6 . State some features of money market instruments. 1 7 . Name the nature of tradeoff faced by investors. 1 8 . Decide some important conditions of an efficient market. 1 9 . I mmunisation investment strateg y on risk management. 2 0 . Name some common assets in investment. 3