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(Solution) Financial Management - Assignment

   

Added on  2021-05-31

9 Pages1327 Words41 Views
FINANCIALMANAGEMENTSTUDENT ID:[Pick the date]

Question 1a)Investment today (t=0) is $25,000Amount received at t=4 is $35,000Let the annual percentage yield be X %Then, 25000*(1+(X/100))4 = 35,000Solving the above, X = 8.78% p.a.b)The methodology involved takes into consideration the compounding effect since theinterest in every year does not remain same here. Since, every year the amount wouldincrease by 8.78% , hence interest on the previous interest would also be obtained in thiscase. The case where compounding is not considered is the simple interest. c)Price of shares at t = 0 was $25,000Dividend income (from t=0 to t=4) = $ 3,000Selling price of share at t=4 is $ 32,000Hence, holding period returns = [(32000-25000+3000)/(25000)]*100 = 40%Question 2a)The requisite computations are shown below.

b)The portfolio beta is given as 1.1Hence, the beta sum for all the 10 shares = 1.1*10 = 11Now a share ABC is sold which has a beta of 0.3Hence, there would 9 shares left in the portfolio with portfolio beta of 11-0.3 = 10.7Now, another share XYZ is bought which has a value of $ 5Therefore, total value of portfolio = 9 + 5 = $ 14Hence, portfolio beta would be the weighted average of the portfolio after ABC left and XYZThus, portfolio beta = (1/14)*10.7 + (5/14)*1.6 = 1.34Question 3As per the CAPM model,

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