Suppose that K1, 000,000 is deposited into a bank account which earns interest at the nominal rate of 12%, compounded quarterly, what is the value of the investment after 1year. (5 marks) Suppose that a T-Bill with face value of K100 is issued on 08. 09.2013 and matures on 15.12.2013. Given that the price of the T-Bill is K99.27076, find the annual rate of interest. Assume simple interest. (5 marks) (Total 15 marks) SECTION B (40 MARKS) Answer ANY two questions QUESTION 5 Discuss the advantages and disadvantages of the payback period method as a capital budgeting technique. (Total 20 marks) QUESTION 6 . (4 marks) Mack Industries just paid a dividend of $1.00 per share (D0 =$1.00). Analysts expect the dividend to grow 20% this year (D1 company’s =$1.20) and 15% next year. After two years the dividend is expected to grow at a constant rate of 5%. The required rate of return on the stock is 12%. What should the current share company’s company’s price? (8 marks) A $100 par perpetual preference share has a dividend rate company’s of 7% and a required rate of return of 11%. The earnings company’s are expected to grow at a constant rate of 3% per year. If the market price per share for the preference share is $75, is the preference share overvalued or undervalued and by how much? (8 marks) (Total 20 marks) QUESTION 7 When a single investment with conventional cash flows is being evaluated there is no conflict between the Net Present Value and Internal Rate of
Suppose that K1, 000,000 is deposited into a bank account which earns interest at the nominal rate of 12%, compounded quarterly, what is the value of the investment after 1year. (5 marks) Suppose that a T-Bill with face value of K100 is issued on 08. 09.2013 and matures on 15.12.2013. Given that the price of the T-Bill is K99.27076, find the annual rate of interest. Assume simple interest. (5 marks) (Total 15 marks) SECTION B (40 MARKS) Answer ANY two questions QUESTION 5 Discuss the advantages and disadvantages of the payback period method as a capital budgeting technique. (Total 20 marks) QUESTION 6 . (4 marks) Mack Industries just paid a dividend of $1.00 per share (D0 =$1.00). Analysts expect the company’s dividend to grow 20% this year (D1 =$1.20) and 15% next year. After two years the dividend is expected to grow at a constant rate of 5%. The required rate of return on the company’s stock is 12%. What should the company’s current share price? (8 marks) A company’s $100 par perpetual preference share has a dividend rate of 7% and a required rate of return of 11%. The company’s earnings are expected to grow at a constant rate of 3% per year. If the market price per share for the preference share is $75, is the preference share overvalued or undervalued and by how much? (8 marks) (Total 20 marks) QUESTION 7 When a single investment with conventional cash flows is being evaluated there is no conflict between the Net Present Value and Internal Rate of
FINANCIAL%20CONCEPTS%20A%20-%20NOV%202013.docx