MSIN0001 Corporate Finance Sample Paper

MSIN0001 Corporate Finance
Sample paper

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................3
A..................................................................................................................................................3
B..................................................................................................................................................3
C..................................................................................................................................................3
D..................................................................................................................................................4
QUESTION 2...................................................................................................................................4
A..................................................................................................................................................4
B..................................................................................................................................................4
C..................................................................................................................................................5
D..................................................................................................................................................5
QUESTION 3...................................................................................................................................5
A..................................................................................................................................................5
B..................................................................................................................................................5
C..................................................................................................................................................7
D..................................................................................................................................................7
QUESTION 4...................................................................................................................................7
A..................................................................................................................................................7
B..................................................................................................................................................7
C..................................................................................................................................................7
D..................................................................................................................................................8

QUESTION 1
A
Beta = (30% / 20%) * 0.4
= 1.5 * 0.4
= 0.6
B
Expected return of stock A
Capital assets pricing model
Particulars Formula Figures
Rf (Risk free rate) 4%
Beta 0.6
Rm (market return) 10%
CAPM Rf + Beta (Rm - Rf) 7.6%
C
Expected return of portfolio
investment Weight probability
Expected
return
Risk free asset 300 30% 4% 0.012
Stock A 400 40% 7.60% 0.0304
Market portfolio 300 30% 10% 0.03
0.0724
Expected return of the
portfolio 7.24
Portfolio Standard Deviation
Weight of risk free asset 0.30
Standard deviation of risk free asset 20.00%
Weight of stock A 0.40
Standard Deviation of stock A 30.00%
Correlation between THE THREE 0.40
weight of market portfolio 0.3
Standard Deviation of market portfolio 30.00%