微信客服：xiaoxionga100
微信客服：ITCS521
FINC2011-金融代写
时间：2021-10-09
The University of Sydney ʹ FINC2011 Page 1
Quiz II
Practice Questions
Multiple Choice Questions
1. A bond is an example of which type of asset?
a) Physical asset
b) Real asset
c) Financial asset
d) Tangible asset
e) Equity asset
2. ABC Ltd has a current share price of $1.25 and is expected to pay an annual dividend of
$0.10 next year. The dividend of ABC Ltd is expected to remain constant forever. DEF Ltd
recently paid a dividend of $0.20 and this dividend is expected to grow at 4% p.a. forever.
What should be the price of DEF Ltd shares if the ABC Ltd discount rate is applicable?
a) $5.40
b) $5.00
c) $4.80
d) $5.20
e) $4.60
FINC2011
The University of Sydney ʹ FINC2011 Page 2
4. Suppose the current Commonwealth Bond yield is 5.5% p.a. compounded semi-annually.
Which of the following risk-free bonds would have the lowest price?
a) A zero-coupon bond, $100 face value, 12 years to maturity
b) A 6.25% p.a. semi-annual coupon bond, $100 face value, 3 years to maturity
c) A 5.5% p.a. semi-annual coupon bond, $100 face value, 5 years to maturity
d) A 10% p.a. annual coupon bond, $100 face value, 8 years to maturity
e) A 8.5% p.a. quarterly coupon bond, $100 face value, 10 years to maturity
5. D>ƚĚƌĞĐĞŶƚůLJƉĂŝĚĂĚŝǀŝĚĞŶĚŽĨΨϬ͘ϱϬ͘dŚĞĐŽŵƉĂŶLJ͛ƐĚŝǀŝĚĞŶĚŝƐĞdžƉĞĐƚĞĚƚŽŐƌŽǁ
at 14% p.a. for the next 4 years and, thereafter, revert to 4% p.a. growth forever.
Investors in ACM require a return of 16% p.a. on their investment in the company. How
much should an investor expect to pay for a share in ACM today?
a) $9.23
b) $5.95
c) $5.40
d) $5.22
e) $4.83
6. Over the period 2005 until 2019, the Australian and US share markets have exhibited the
following return characteristics:
Market Expected Return Standard Deviation
Australian 9.80% 18.80%
US 10.98% 17.11%
Given the correlation between the two markets was 0.45 over this period, a portfolio
consisting of 60% Australian shares and 40% US stocks would have a standard deviation
of:
a) 12.24%
b) 14.29%
c) 15.61%
d) 18.12%
e) None of the above
The University of Sydney ʹ FINC2011 Page 3
7. Davco plans on issuing new corporate bonds. The bonds have a face value of $100,
mature in 3 years, and have a coupon rate of 8% p.a. compounded quarterly. Coupon
payments are made quarterly. If yields in the market are 10% p.a. compounded semi-
annually, how much will each Davco bond cost?
a) $95.13
b) $94.87
c) $94.18
d) $94.92
e) $95.17
8. There are two states in the economy: good and bad with equal probability of occurrence.
You have a choice of two investments ʹ X and Y. Investment X will earn you $5 from a
$100 investment irrespective of economic conditions whilst Investment Y will earn you
$10 in the good state but nothing in the bad state. Which investment would you prefer
and why?
a) Investment X because you will earn the same returns as Investment Y but with lower
risk
b) Neither X nor Y
c) Investment Y because it has lower risk
d) Both X and Y are equally acceptable
e) Investment Y because you will earn higher returns in the good state
9. XHZ Ltd recently paid a dividend of $0.23. This dividend is expected to grow at a constant
rate of 3% p.a. The ĐŽŵƉĂŶLJ͛ƐĞƋƵŝƚLJŚŽůĚĞƌƐƌĞƋƵŝƌĞĂƌĞƚƵƌŶŽĨϭϭ͘ϵϱйƉ͘Ă͘ŽŶĞƋƵŝƚLJ
investments. Which of the formulae given below would enable you to determine XHZ
>ƚĚ͛͘ƐĐƵƌƌĞŶƚƐŚĂƌĞƉƌŝĐĞŝŶone step?
a) ൌ
ୈబሺଵା୰ሻ
୰ି
b) ൌ
ୈబሺଵାሻ
୰ି
c) ൌ
ୈబ
୰ି
d) ଵ ൌ
ୈభ
୰ି
e) ൌ
ୈభሺଵାሻ
୰ି
The University of Sydney ʹ FINC2011 Page 4
10. The value of a firm is given by its free cash flows discounted by:
a) Opportunity cost of capital
b) Company cost of capital
c) Required rate of return
d) Weighted average cost of capital
e) All of the above
Portfolio A Portfolio B Portfolio C Portfolio D Portfolio E
12. Whitehaven Resorts (WVN) Ltd shares are currently trading at $2.44. The required rate
of return demanded by shareholders in the company is 10% p.a. compounded semi-
annually. If WVN pays dividends on an annual basis and the dividend is expected to
ƌĞŵĂŝŶĐŽŶƐƚĂŶƚĨŽƌĞǀĞƌ͕ŚŽǁŵƵĐŚ;ƌŽƵŶĚĞĚƚŽϮĚĞĐŝŵĂůƉůĂĐĞƐͿǁŝůůďĞƚŚĞĐŽŵƉĂŶLJ͛Ɛ
dividend next year?
a) $0.24
b) $0.25
c) $0.18
d) $0.12
e) $0.10
The University of Sydney ʹ FINC2011 Page 5
13. You purchased shares in BMW Group one year ago for $85 and have just sold the stock
for $92.50. If you achieved a total return of 20% p.a. on this investment, what were the
total dividends that you received during the year?
a) $9.50
b) $17.00
c) $17.50
d) $0
e) none of the above
14. Suppose the current Commonwealth Bond yield is 10% p.a. compounded semi-annually.
Which of the following bonds should have the highest price?
a) A zero-coupon bond, $100 face value, 3 years until maturity
b) A 12% p.a. semi-annual coupon bond, $100 face value, 5 years until maturity
c) A 10% p.a. annual coupon bond, $100 face value, 7 years until maturity
d) A 10% p.a. semi-annual coupon bond, $100 face value, 10 years until maturity
e) An 8% p.a. semi-annual coupon bond, $100 face value, 20 years to maturity
15. Shares in ANZ opened trading at $28.38 and closed trading at $27.89. Shares in
Macquarie Bank opened trading at $70.60 and closed trading at $69.42. What was the
ƌĂƚĞŽĨƌĞƚƵƌŶŐĞŶĞƌĂƚĞĚŽŶĞĂĐŚƐƚŽĐŬŽǀĞƌƚŚĞĚĂLJ͛ƐƚƌĂĚŝŶŐ͍tŚŝĐŚƐƚŽĐŬǁŽƵůĚLJŽƵ
have preferred to have invested in (given the benefit of hindsight)?
a) ANZ returns -1.75%, Macquarie returns -1.70%, Preferred Macquarie
b) ANZ returns -1.75%, Macquarie returns -1.70%, Preferred ANZ
c) ANZ returns -1.73%, Macquarie returns -1.67%, Preferred Macquarie
d) ANZ returns -1.73%, Macquarie returns -1.67%, Preferred ANZ
e) ANZ returns -1.73%, Macquarie returns -1.67%, Preferred neither of them
The University of Sydney ʹ FINC2011 Page 6
Questions 16 and 17 relate to the following information.
Costa Concordia Shipping (CCS) Ltd today paid a dividend of $0.40 and reported an EPS of $1
for the most recent six months. The company pays semi-annual dividends. Shareholders in
CCS require a return of 12.00% p.a. compounded semi-annually and the company generates
a ROE of 11.3025% p.a. compounded annually.
16. What is the growth rate in CCS dividends per six months?
a) 3.30%
b) 3.39%
c) 2.26%
d) 2.20%
e) 1.80%
17. Assuming the payout ratio, required rate of return and ROE had remained constant, what
should have been the price of one CCS share exactly six months ago?
a) $13.66
b) $14.81
c) $13.18
d) $15.33
e) $13.23
18. Platinum Consulting Group (PCG) Ltd is looking at raising additional capital through the
issue of 14% p.a. three-year corporate bonds. These bonds will have a face value of $100
and make coupon payments on a semi-annual basis. If the market rate on similar
ĐŽŵƉĂŶŝĞƐ͛ďŽŶĚƐŝƐĐƵƌƌĞŶƚůLJϭϬйƉ͘Ă͕͘ǁŚĂƚǁŝůůďĞƚŚĞŝƐƐƵĞƉƌŝĐĞŽĨW'͛ƐĐŽƌƉŽƌĂƚĞ
bonds?
a) $90.47
b) $90.71
c) $105.48
d) $109.95
e) $110.15
The University of Sydney ʹ FINC2011 Page 7
19. Given the following information:
State of
economy
Probability
of state
Rate of return
East Ltd
Rate of return
West Ltd
Recession 20% 2% -30%
Normal 60% 7% 18%
Boom 20% 15% 30%
Calculate the standard deviation for a portfolio consisting of 60% in East Ltd and the
remainder in West Ltd.
a) 10.52%
b) 10.87%
c) 11.09%
d) 12.29%
e) Cannot be calculated with the information provided
20. Whitman Ltd is planning on raising new debt capital through the issue of 12% p.a.
quarterly coupon bonds with a face value of $100. These bonds will mature in six years.
If the current market yield is 10% p.a. compounded semi-annually, how much will each
ŽĨtŚŝƚŵĂŶ͛ƐďŽŶĚƐĐŽƐƚ͍
a) $106.88
b) $107.45
c) $108.86
d) $109.51
e) $110.00
Questions 21 and 22 relate to the following information.
The following price data (in British Pounds) were found for these UK stocks:
GlaxoSmithKline
(GSK)
Royal Bank of Scotland
(RBS)
Tesco
(TSCO)
June 1641.89 196.42 220.70
July 1650.57 167.87 216.64
August 1701.89 200.01 238.19
Sept 1725.30 204.92 232.46
October 1711.06 217.93 229.40
The University of Sydney ʹ FINC2011 Page 8
21. What is the difference in monthly returns between the stocks with the highest and lowest
expected return?
a) 1.047%
b) 1.875%
c) 1.957%
d) 2.263%
e) 2.307%
22. What is the expected monthly return of a portfolio that is made up of 34% RBS, 27% in
TSCO and the rest in GSK?
a) 0.947%
b) 1.346%
c) 1.845%
d) 2.066%
e) 2.193%
23. Ariakan Wealth Management (AWM) Ltd is looking at raising additional equity capital
through an ordinary share issue. AWM shareholders require a return of 11% p.a. on their
investment in the company. Ariakan pays out 50% of earnings each year as a dividend
and had EPS this year of $1.10. EPS is expected to grow by 8% p.a. for the next three years
then revert to 2% p.a. growth forever after that time. If AWM plans on issuing each share
at a price that is 10% below its true value, how much will each share cost?
a) $7.92
b) $7.68
c) $7.30
d) $6.91
e) $6.57
The University of Sydney ʹ FINC2011 Page 9
25. Which of the following is not a feature of a typical debt security?
a) The return is usually contractually fixed for the life of the security
b) The holder has a partial ownership interest in the firm
c) The principle will be repaid at the end of a fixed period
d) The holder has first claim to the assets of the firm in the event of liquidation
e) All of the above are features of debt securities
27. XHZ Ltd has recently paid a dividend of $0.23. This dividend is expected to grow at a
ĐŽŶƐƚĂŶƚƌĂƚĞŽĨϯйƉ͘Ă͘dŚĞĐŽŵƉĂŶLJ͛ƐĞƋƵŝƚLJŚŽůĚĞƌƐƌĞƋƵŝƌĞĂƌĞƚƵƌŶŽĨϭϭ͘ϵϱйƉ͘Ă͘ŽŶ
equity investments. How much would you expect to pay for a share of XHZ Ltd?
a) $2.88
b) $2.65
c) $2.60
d) $2.57
e) $1.92
The University of Sydney ʹ FINC2011 Page 10
28. Which of the following securities has a finite life?
a) Ordinary Shares
b) Preference Shares
c) Corporate Bonds
d) Common Stock
e) All of the above
Questions 29 and 30 relate to the following information.
In your role as an investment analyst for Phoenix Capital Partners Ltd you have gathered the
following information about listed companies on the Fictional Stock Exchange (FSX):
Company Code No. of Shares
(million)
Stock Price on
1 January 2019
Stock price on
31 December 2019
AAA 10.5 $10.45 $11.25
BBB 8.8 $11.99 $13.55
CCC 16.9 $6.15 $6.88
DDD 2.7 $28.42 $30.25
EEE 21.3 $5.50 $5.80
29. Which company has the largest market capitalisation on 31 December 2019?
a) AAA
b) BBB
c) CCC
d) DDD
e) EEE
30. Which company generated the highest return over the period 1 January 2019 to 31
December 2019?
a) AAA
b) BBB
c) CCC
d) DDD
e) EEE
The University of Sydney ʹ FINC2011 Page 11
33. KŶϯϬ:ƵŶĞϮϬϭϵdƌŽũĂŶ>ƚĚĂŶŶŽƵŶĐĞĚƚŚĂƚƚŚĞĐŽŵƉĂŶLJ͛ƐW^was $1.10 and the DPS
ǁĂƐΨϬ͘ϱϱĨŽƌƚŚĞLJĞĂƌũƵƐƚĞŶĚĞĚ͘ŶĂůLJƐƚƐĞdžƉĞĐƚƚŚĂƚdƌŽũĂŶ͛ƐW^ǁŝůůĐŽŶƚŝŶƵĞƚŽŐƌŽǁ
at 3% in perpetuity. Trojan has a payout ratio of 50% and expects that this will continue
to be the case in perpetuity. If the current share prŝĐĞŽĨdƌŽũĂŶŝƐΨϳ͘Ϭϴ͕ǁŚĂƚŝƐdƌŽũĂŶ͛Ɛ
implied required rate of return on equity?
a) 8%
b) 9%
c) 10%
d) 11%
e) 12%
The University of Sydney ʹ FINC2011 Page 12
35. Diamond Asset Consultants (DAC) Ltd is looking at raising additional capital through the
issue of 12% p.a. five-year corporate bonds. These bonds will have a face value of $100
and make coupon payments on a semi-annual basis. If the market rate on similar
ĐŽŵƉĂŶŝĞƐ͛ďŽŶĚƐŝƐĐƵƌƌĞŶƚůLJϭϬйƉ͘Ă͕͘ǁŚĂƚǁŝůůďĞƚŚĞŝƐƐƵĞƉƌŝĐĞŽĨ͛ƐĐŽƌƉŽƌĂƚĞ
bonds?
a) $129.44
b) $107.72
c) $107.58
d) $92.79
e) $92.64
The University of Sydney ʹ FINC2011 Page 13
37. The following month-end price and dividend data was found for CSL Limited:
Month Closing Price Dividend
March 2020 $312.68 $1.47
February 2020 $309.44 $0
January 2020 $312.05 $0
December 2019 $275.76 $0
November 2019 $283.48 $0
October 2019 $256.03 $0
The geometric average rate of return over this period is:
a) -3.828%
b) -3.919%
c) 3.468%
d) 4.079%
e) 4.176%
38. Tiger Ltd expects to pay a dividend of $0.12 next half-year and expects to maintain this
same semi-annual dividend amount forever. Tiger shares are currently trading at $5.50
per share. What annual required return on equity are shareholders in Tiger expecting?
a) 4.41% pa compounding semi-annually
b) 1.14% pa compounded semi-annually
c) 4.36% pa compounded semi-annually
d) 2.18% pa compounded semi-annually
e) Not enough information to answer the question
39. For a portfolio of n stocks, the formula for portfolio variance contains:
a) n2 variance terms
b) n-1 variance terms
c) n/2 variance terms
d) n variance terms
e) (n2-1)/2 variance terms
The University of Sydney ʹ FINC2011 Page 14
40. Sony has an average historical return of 16.3% p.a. and a standard deviation of 5.3%. In
which range do you expect the returns of Sony to fall approximately 68% of the time?
a) 5.7% to 26.9% p.a.
b) 5.3% to 16.3% p.a.
c) 11.0% to 21.6% p.a.
d) 6.2% to 18.5% p.a.
e) 12.7% to 19.9% p.a.
41.
42. What is the purpose of diversification?
a) To increase the risk of a portfolio for a given level of return
b) dŽĞůŝŵŝŶĂƚĞĂƉŽƌƚĨŽůŝŽ͛ƐĞdžƉŽƐƵƌĞƚŽƐLJƐƚĞŵĂƚŝĐƌŝƐŬ
c) To maximise possible portfolio returns
d) To lower the overall risk of your portfolio
e) dŽŝŶĐƌĞĂƐĞƚŚĞƉŽƌƚĨŽůŝŽ͛ƐĂďŝůŝƚLJƚŽƉƌŽĨŝƚĨƌŽŵƵŶƐLJƐƚĞŵĂƚŝĐƌŝƐŬĨĂĐƚŽƌƐ
43. Endeavour Enterprises is expected to pay a dividend of $1.22 at the end of the current
year and analysts predict that the dividend is expected to grow at a constant rate of 9%
p.a. after that. If Endeavour Enterprises shareholders require a return of 8% p.a. on equity
capital provided to the firm what will be its current share price?
a) -$122.00
b) $100.00
c) $122.00
d) $0.00
e) Unable to determine using a constant dividend growth model
The University of Sydney ʹ FINC2011 Page 15
44. Sovereign Ltd is planning on raising new debt capital through the issue of 10% p.a.
quarterly coupon bonds with a face value of $100. These bonds will mature in six years.
If the current market yield is 12% p.a. compounded semi-annually, how much will each
ŽĨ^ŽǀĞƌĞŝŐŶ͛ƐďŽŶĚƐĐŽƐƚ͍
a) $91.43
b) $91.62
c) $91.88
d) $92.24
e) $93.21
46. zĞƐƚĞƌĚĂLJĚǀĂŶƚĂŐĞdĞĐŚŶŽůŽŐLJ>ƚĚĂŶŶŽƵŶĐĞĚƚŚĂƚƚŚĞĐŽŵƉĂŶLJ͛ƐW^ǁĂƐΨϬ͘ϴϲĂŶĚ
W^ǁĂƐΨϬ͘ϰϯĨŽƌƚŚĞƉƌĞǀŝŽƵƐLJĞĂƌ͘ŶĂůLJƐƚƐĞdžƉĞĐƚƚŚĂƚĚǀĂŶƚĂŐĞ͛ƐW^ǁŝůůĐŽŶƚŝŶƵĞ
to grow at 4% p.a. in perpetuity. Advantage has a payout ratio of 50% and expects that
this will continue to be the case in perpetuity. If the current share price of Advantage is
Ψϭϭ͘ϭϴ͕ǁŚĂƚŝƐĚǀĂŶƚĂŐĞ͛ƐŝŵƉůŝĞĚƌĞƋƵŝƌĞĚƌĂƚĞŽĨƌĞƚƵƌŶŽŶĞƋƵŝƚLJ͍
a) 8%
b) 9%
c) 10%
d) 11%
e) 12%
The University of Sydney ʹ FINC2011 Page 16
EƵŵĞƌŝĐĂů Answer Questions
ϰϳ͘ Lavender Group (LVG) Ltd has not paid any dividends previously and expects to pay its
first semi-ĂŶŶƵĂůĚŝǀŝĚĞŶĚŽĨΨϬ͘ϮϱŝŶŽŶĞLJĞĂƌƐ͛ƚŝŵĞ͘>s'ĞdžƉĞĐƚƐŝƚƐĞĂƌŶŝŶŐƐƉĞƌƐŚĂƌĞ
to grow at 8% p.a. compounded semi-annually for two years from today before reverting
to a growth rate of 4% p.a. compounded semi-annually forever. LVG maintains a constant
payout ratio. The shareholders of LVG require a return of 14.49% p.a. compounded
annually.WůĞĂƐĞƌŽƵŶĚLJŽƵƌĨŝŶĂůĂŶƐǁĞƌƚŽƚŚĞŶĞĂƌĞƐƚĚŽůůĂƌ;ĂůůŝŶƚĞƌŵĞĚŝĂƚĞƐƚĞƉƐ
ƐŚŽƵůĚďĞĐŽŵƉůĞƚĞĚƚŽϰŽƌŵŽƌĞĚĞĐŝŵĂůƉůĂĐĞƐͿ͘
ĂͿ What should be the price of one LVG share today?
ďͿ Suppose the expected future growth rate after the first 2 years was revised down
from 4% p.a. compounded semi-annually to 0% p.a. What impact would this have on
>s'͛ƐĐƵƌƌĞŶƚƐŚĂƌĞƉƌŝĐĞ͍
ϰϴ͘ Happy Hens Co had the following end-of-year share prices over the last five years:
Year Happy Hens Co Share Price
1 $15
2 $18.50
3 $16
4 $21
5 $19.50
They have paid a cash dividend of $5.50 at the end of both Year 1 and Year 4. tŚĂƚŝƐĂͿ
ƚŚĞ ĂƌŝƚŚŵĞƚŝĐ ĂǀĞƌĂŐĞ ƌĂƚĞ ŽĨ ƌĞƚƵƌŶ͕ ĂŶĚ ďͿ ƚŚĞ ŐĞŽŵĞƚƌŝĐ ĂǀĞƌĂŐĞ ƌĂƚĞ ŽĨ ƌĞƚƵƌŶ͍
WůĞĂƐĞ ƌŽƵŶĚ LJŽƵƌ ĨŝŶĂů ĂŶƐǁĞƌ ƚŽ ϰĚĞĐŝŵĂůƉůĂĐĞƐ;ĂůůŝŶƚĞƌŵĞĚŝĂƚĞƐƚĞƉƐ ƐŚŽƵůĚ ďĞ
ƌŽƵŶĚĞĚƚŽϰŽƌŵŽƌĞĚĞĐŝŵĂůƉůĂĐĞƐͿ͕Ğ͘Ő͘Ϭ͘ϬϬϯϮϭϳƐŚŽƵůĚďĞƉƵƚĂƐϬ͘ϬϬϯϮ͘
ϰϵ͘
The University of Sydney ʹ FINC2011 Page 17
^ŚŽƌƚ ŶƐǁĞƌ YƵĞƐƚŝŽŶ
5Ϭ͘ dŚĞĨŽůůŽǁŝŶŐƚĂďůĞĚĞƚĂŝůƐĂŶĂŶĂůLJƐƚ͛Ɛprediction of the probabilities of different states
of the market over the next year, along with the forecast returns on two shares in each
different market state.
State Probability Return on Share A Return on Share B
Great 0.1 31% 15%
Good 0.3 13% 18%
Average 0.4 12% 10%
Bad 0.2 -9% 3%
a) Calculate the expected return and standard deviation of returns on shares A and B.
b) If the covariance of returns between securities A and B is 0.00443, what is their
correlation coefficient?
Quiz II
Practice Questions
Multiple Choice Questions
1. A bond is an example of which type of asset?
a) Physical asset
b) Real asset
c) Financial asset
d) Tangible asset
e) Equity asset
2. ABC Ltd has a current share price of $1.25 and is expected to pay an annual dividend of
$0.10 next year. The dividend of ABC Ltd is expected to remain constant forever. DEF Ltd
recently paid a dividend of $0.20 and this dividend is expected to grow at 4% p.a. forever.
What should be the price of DEF Ltd shares if the ABC Ltd discount rate is applicable?
a) $5.40
b) $5.00
c) $4.80
d) $5.20
e) $4.60
FINC2011
The University of Sydney ʹ FINC2011 Page 2
4. Suppose the current Commonwealth Bond yield is 5.5% p.a. compounded semi-annually.
Which of the following risk-free bonds would have the lowest price?
a) A zero-coupon bond, $100 face value, 12 years to maturity
b) A 6.25% p.a. semi-annual coupon bond, $100 face value, 3 years to maturity
c) A 5.5% p.a. semi-annual coupon bond, $100 face value, 5 years to maturity
d) A 10% p.a. annual coupon bond, $100 face value, 8 years to maturity
e) A 8.5% p.a. quarterly coupon bond, $100 face value, 10 years to maturity
5. D>ƚĚƌĞĐĞŶƚůLJƉĂŝĚĂĚŝǀŝĚĞŶĚŽĨΨϬ͘ϱϬ͘dŚĞĐŽŵƉĂŶLJ͛ƐĚŝǀŝĚĞŶĚŝƐĞdžƉĞĐƚĞĚƚŽŐƌŽǁ
at 14% p.a. for the next 4 years and, thereafter, revert to 4% p.a. growth forever.
Investors in ACM require a return of 16% p.a. on their investment in the company. How
much should an investor expect to pay for a share in ACM today?
a) $9.23
b) $5.95
c) $5.40
d) $5.22
e) $4.83
6. Over the period 2005 until 2019, the Australian and US share markets have exhibited the
following return characteristics:
Market Expected Return Standard Deviation
Australian 9.80% 18.80%
US 10.98% 17.11%
Given the correlation between the two markets was 0.45 over this period, a portfolio
consisting of 60% Australian shares and 40% US stocks would have a standard deviation
of:
a) 12.24%
b) 14.29%
c) 15.61%
d) 18.12%
e) None of the above
The University of Sydney ʹ FINC2011 Page 3
7. Davco plans on issuing new corporate bonds. The bonds have a face value of $100,
mature in 3 years, and have a coupon rate of 8% p.a. compounded quarterly. Coupon
payments are made quarterly. If yields in the market are 10% p.a. compounded semi-
annually, how much will each Davco bond cost?
a) $95.13
b) $94.87
c) $94.18
d) $94.92
e) $95.17
8. There are two states in the economy: good and bad with equal probability of occurrence.
You have a choice of two investments ʹ X and Y. Investment X will earn you $5 from a
$100 investment irrespective of economic conditions whilst Investment Y will earn you
$10 in the good state but nothing in the bad state. Which investment would you prefer
and why?
a) Investment X because you will earn the same returns as Investment Y but with lower
risk
b) Neither X nor Y
c) Investment Y because it has lower risk
d) Both X and Y are equally acceptable
e) Investment Y because you will earn higher returns in the good state
9. XHZ Ltd recently paid a dividend of $0.23. This dividend is expected to grow at a constant
rate of 3% p.a. The ĐŽŵƉĂŶLJ͛ƐĞƋƵŝƚLJŚŽůĚĞƌƐƌĞƋƵŝƌĞĂƌĞƚƵƌŶŽĨϭϭ͘ϵϱйƉ͘Ă͘ŽŶĞƋƵŝƚLJ
investments. Which of the formulae given below would enable you to determine XHZ
>ƚĚ͛͘ƐĐƵƌƌĞŶƚƐŚĂƌĞƉƌŝĐĞŝŶone step?
a) ൌ
ୈబሺଵା୰ሻ
୰ି
b) ൌ
ୈబሺଵାሻ
୰ି
c) ൌ
ୈబ
୰ି
d) ଵ ൌ
ୈభ
୰ି
e) ൌ
ୈభሺଵାሻ
୰ି
The University of Sydney ʹ FINC2011 Page 4
10. The value of a firm is given by its free cash flows discounted by:
a) Opportunity cost of capital
b) Company cost of capital
c) Required rate of return
d) Weighted average cost of capital
e) All of the above
Portfolio A Portfolio B Portfolio C Portfolio D Portfolio E
12. Whitehaven Resorts (WVN) Ltd shares are currently trading at $2.44. The required rate
of return demanded by shareholders in the company is 10% p.a. compounded semi-
annually. If WVN pays dividends on an annual basis and the dividend is expected to
ƌĞŵĂŝŶĐŽŶƐƚĂŶƚĨŽƌĞǀĞƌ͕ŚŽǁŵƵĐŚ;ƌŽƵŶĚĞĚƚŽϮĚĞĐŝŵĂůƉůĂĐĞƐͿǁŝůůďĞƚŚĞĐŽŵƉĂŶLJ͛Ɛ
dividend next year?
a) $0.24
b) $0.25
c) $0.18
d) $0.12
e) $0.10
The University of Sydney ʹ FINC2011 Page 5
13. You purchased shares in BMW Group one year ago for $85 and have just sold the stock
for $92.50. If you achieved a total return of 20% p.a. on this investment, what were the
total dividends that you received during the year?
a) $9.50
b) $17.00
c) $17.50
d) $0
e) none of the above
14. Suppose the current Commonwealth Bond yield is 10% p.a. compounded semi-annually.
Which of the following bonds should have the highest price?
a) A zero-coupon bond, $100 face value, 3 years until maturity
b) A 12% p.a. semi-annual coupon bond, $100 face value, 5 years until maturity
c) A 10% p.a. annual coupon bond, $100 face value, 7 years until maturity
d) A 10% p.a. semi-annual coupon bond, $100 face value, 10 years until maturity
e) An 8% p.a. semi-annual coupon bond, $100 face value, 20 years to maturity
15. Shares in ANZ opened trading at $28.38 and closed trading at $27.89. Shares in
Macquarie Bank opened trading at $70.60 and closed trading at $69.42. What was the
ƌĂƚĞŽĨƌĞƚƵƌŶŐĞŶĞƌĂƚĞĚŽŶĞĂĐŚƐƚŽĐŬŽǀĞƌƚŚĞĚĂLJ͛ƐƚƌĂĚŝŶŐ͍tŚŝĐŚƐƚŽĐŬǁŽƵůĚLJŽƵ
have preferred to have invested in (given the benefit of hindsight)?
a) ANZ returns -1.75%, Macquarie returns -1.70%, Preferred Macquarie
b) ANZ returns -1.75%, Macquarie returns -1.70%, Preferred ANZ
c) ANZ returns -1.73%, Macquarie returns -1.67%, Preferred Macquarie
d) ANZ returns -1.73%, Macquarie returns -1.67%, Preferred ANZ
e) ANZ returns -1.73%, Macquarie returns -1.67%, Preferred neither of them
The University of Sydney ʹ FINC2011 Page 6
Questions 16 and 17 relate to the following information.
Costa Concordia Shipping (CCS) Ltd today paid a dividend of $0.40 and reported an EPS of $1
for the most recent six months. The company pays semi-annual dividends. Shareholders in
CCS require a return of 12.00% p.a. compounded semi-annually and the company generates
a ROE of 11.3025% p.a. compounded annually.
16. What is the growth rate in CCS dividends per six months?
a) 3.30%
b) 3.39%
c) 2.26%
d) 2.20%
e) 1.80%
17. Assuming the payout ratio, required rate of return and ROE had remained constant, what
should have been the price of one CCS share exactly six months ago?
a) $13.66
b) $14.81
c) $13.18
d) $15.33
e) $13.23
18. Platinum Consulting Group (PCG) Ltd is looking at raising additional capital through the
issue of 14% p.a. three-year corporate bonds. These bonds will have a face value of $100
and make coupon payments on a semi-annual basis. If the market rate on similar
ĐŽŵƉĂŶŝĞƐ͛ďŽŶĚƐŝƐĐƵƌƌĞŶƚůLJϭϬйƉ͘Ă͕͘ǁŚĂƚǁŝůůďĞƚŚĞŝƐƐƵĞƉƌŝĐĞŽĨW'͛ƐĐŽƌƉŽƌĂƚĞ
bonds?
a) $90.47
b) $90.71
c) $105.48
d) $109.95
e) $110.15
The University of Sydney ʹ FINC2011 Page 7
19. Given the following information:
State of
economy
Probability
of state
Rate of return
East Ltd
Rate of return
West Ltd
Recession 20% 2% -30%
Normal 60% 7% 18%
Boom 20% 15% 30%
Calculate the standard deviation for a portfolio consisting of 60% in East Ltd and the
remainder in West Ltd.
a) 10.52%
b) 10.87%
c) 11.09%
d) 12.29%
e) Cannot be calculated with the information provided
20. Whitman Ltd is planning on raising new debt capital through the issue of 12% p.a.
quarterly coupon bonds with a face value of $100. These bonds will mature in six years.
If the current market yield is 10% p.a. compounded semi-annually, how much will each
ŽĨtŚŝƚŵĂŶ͛ƐďŽŶĚƐĐŽƐƚ͍
a) $106.88
b) $107.45
c) $108.86
d) $109.51
e) $110.00
Questions 21 and 22 relate to the following information.
The following price data (in British Pounds) were found for these UK stocks:
GlaxoSmithKline
(GSK)
Royal Bank of Scotland
(RBS)
Tesco
(TSCO)
June 1641.89 196.42 220.70
July 1650.57 167.87 216.64
August 1701.89 200.01 238.19
Sept 1725.30 204.92 232.46
October 1711.06 217.93 229.40
The University of Sydney ʹ FINC2011 Page 8
21. What is the difference in monthly returns between the stocks with the highest and lowest
expected return?
a) 1.047%
b) 1.875%
c) 1.957%
d) 2.263%
e) 2.307%
22. What is the expected monthly return of a portfolio that is made up of 34% RBS, 27% in
TSCO and the rest in GSK?
a) 0.947%
b) 1.346%
c) 1.845%
d) 2.066%
e) 2.193%
23. Ariakan Wealth Management (AWM) Ltd is looking at raising additional equity capital
through an ordinary share issue. AWM shareholders require a return of 11% p.a. on their
investment in the company. Ariakan pays out 50% of earnings each year as a dividend
and had EPS this year of $1.10. EPS is expected to grow by 8% p.a. for the next three years
then revert to 2% p.a. growth forever after that time. If AWM plans on issuing each share
at a price that is 10% below its true value, how much will each share cost?
a) $7.92
b) $7.68
c) $7.30
d) $6.91
e) $6.57
The University of Sydney ʹ FINC2011 Page 9
25. Which of the following is not a feature of a typical debt security?
a) The return is usually contractually fixed for the life of the security
b) The holder has a partial ownership interest in the firm
c) The principle will be repaid at the end of a fixed period
d) The holder has first claim to the assets of the firm in the event of liquidation
e) All of the above are features of debt securities
27. XHZ Ltd has recently paid a dividend of $0.23. This dividend is expected to grow at a
ĐŽŶƐƚĂŶƚƌĂƚĞŽĨϯйƉ͘Ă͘dŚĞĐŽŵƉĂŶLJ͛ƐĞƋƵŝƚLJŚŽůĚĞƌƐƌĞƋƵŝƌĞĂƌĞƚƵƌŶŽĨϭϭ͘ϵϱйƉ͘Ă͘ŽŶ
equity investments. How much would you expect to pay for a share of XHZ Ltd?
a) $2.88
b) $2.65
c) $2.60
d) $2.57
e) $1.92
The University of Sydney ʹ FINC2011 Page 10
28. Which of the following securities has a finite life?
a) Ordinary Shares
b) Preference Shares
c) Corporate Bonds
d) Common Stock
e) All of the above
Questions 29 and 30 relate to the following information.
In your role as an investment analyst for Phoenix Capital Partners Ltd you have gathered the
following information about listed companies on the Fictional Stock Exchange (FSX):
Company Code No. of Shares
(million)
Stock Price on
1 January 2019
Stock price on
31 December 2019
AAA 10.5 $10.45 $11.25
BBB 8.8 $11.99 $13.55
CCC 16.9 $6.15 $6.88
DDD 2.7 $28.42 $30.25
EEE 21.3 $5.50 $5.80
29. Which company has the largest market capitalisation on 31 December 2019?
a) AAA
b) BBB
c) CCC
d) DDD
e) EEE
30. Which company generated the highest return over the period 1 January 2019 to 31
December 2019?
a) AAA
b) BBB
c) CCC
d) DDD
e) EEE
The University of Sydney ʹ FINC2011 Page 11
33. KŶϯϬ:ƵŶĞϮϬϭϵdƌŽũĂŶ>ƚĚĂŶŶŽƵŶĐĞĚƚŚĂƚƚŚĞĐŽŵƉĂŶLJ͛ƐW^was $1.10 and the DPS
ǁĂƐΨϬ͘ϱϱĨŽƌƚŚĞLJĞĂƌũƵƐƚĞŶĚĞĚ͘ŶĂůLJƐƚƐĞdžƉĞĐƚƚŚĂƚdƌŽũĂŶ͛ƐW^ǁŝůůĐŽŶƚŝŶƵĞƚŽŐƌŽǁ
at 3% in perpetuity. Trojan has a payout ratio of 50% and expects that this will continue
to be the case in perpetuity. If the current share prŝĐĞŽĨdƌŽũĂŶŝƐΨϳ͘Ϭϴ͕ǁŚĂƚŝƐdƌŽũĂŶ͛Ɛ
implied required rate of return on equity?
a) 8%
b) 9%
c) 10%
d) 11%
e) 12%
The University of Sydney ʹ FINC2011 Page 12
35. Diamond Asset Consultants (DAC) Ltd is looking at raising additional capital through the
issue of 12% p.a. five-year corporate bonds. These bonds will have a face value of $100
and make coupon payments on a semi-annual basis. If the market rate on similar
ĐŽŵƉĂŶŝĞƐ͛ďŽŶĚƐŝƐĐƵƌƌĞŶƚůLJϭϬйƉ͘Ă͕͘ǁŚĂƚǁŝůůďĞƚŚĞŝƐƐƵĞƉƌŝĐĞŽĨ͛ƐĐŽƌƉŽƌĂƚĞ
bonds?
a) $129.44
b) $107.72
c) $107.58
d) $92.79
e) $92.64
The University of Sydney ʹ FINC2011 Page 13
37. The following month-end price and dividend data was found for CSL Limited:
Month Closing Price Dividend
March 2020 $312.68 $1.47
February 2020 $309.44 $0
January 2020 $312.05 $0
December 2019 $275.76 $0
November 2019 $283.48 $0
October 2019 $256.03 $0
The geometric average rate of return over this period is:
a) -3.828%
b) -3.919%
c) 3.468%
d) 4.079%
e) 4.176%
38. Tiger Ltd expects to pay a dividend of $0.12 next half-year and expects to maintain this
same semi-annual dividend amount forever. Tiger shares are currently trading at $5.50
per share. What annual required return on equity are shareholders in Tiger expecting?
a) 4.41% pa compounding semi-annually
b) 1.14% pa compounded semi-annually
c) 4.36% pa compounded semi-annually
d) 2.18% pa compounded semi-annually
e) Not enough information to answer the question
39. For a portfolio of n stocks, the formula for portfolio variance contains:
a) n2 variance terms
b) n-1 variance terms
c) n/2 variance terms
d) n variance terms
e) (n2-1)/2 variance terms
The University of Sydney ʹ FINC2011 Page 14
40. Sony has an average historical return of 16.3% p.a. and a standard deviation of 5.3%. In
which range do you expect the returns of Sony to fall approximately 68% of the time?
a) 5.7% to 26.9% p.a.
b) 5.3% to 16.3% p.a.
c) 11.0% to 21.6% p.a.
d) 6.2% to 18.5% p.a.
e) 12.7% to 19.9% p.a.
41.
42. What is the purpose of diversification?
a) To increase the risk of a portfolio for a given level of return
b) dŽĞůŝŵŝŶĂƚĞĂƉŽƌƚĨŽůŝŽ͛ƐĞdžƉŽƐƵƌĞƚŽƐLJƐƚĞŵĂƚŝĐƌŝƐŬ
c) To maximise possible portfolio returns
d) To lower the overall risk of your portfolio
e) dŽŝŶĐƌĞĂƐĞƚŚĞƉŽƌƚĨŽůŝŽ͛ƐĂďŝůŝƚLJƚŽƉƌŽĨŝƚĨƌŽŵƵŶƐLJƐƚĞŵĂƚŝĐƌŝƐŬĨĂĐƚŽƌƐ
43. Endeavour Enterprises is expected to pay a dividend of $1.22 at the end of the current
year and analysts predict that the dividend is expected to grow at a constant rate of 9%
p.a. after that. If Endeavour Enterprises shareholders require a return of 8% p.a. on equity
capital provided to the firm what will be its current share price?
a) -$122.00
b) $100.00
c) $122.00
d) $0.00
e) Unable to determine using a constant dividend growth model
The University of Sydney ʹ FINC2011 Page 15
44. Sovereign Ltd is planning on raising new debt capital through the issue of 10% p.a.
quarterly coupon bonds with a face value of $100. These bonds will mature in six years.
If the current market yield is 12% p.a. compounded semi-annually, how much will each
ŽĨ^ŽǀĞƌĞŝŐŶ͛ƐďŽŶĚƐĐŽƐƚ͍
a) $91.43
b) $91.62
c) $91.88
d) $92.24
e) $93.21
46. zĞƐƚĞƌĚĂLJĚǀĂŶƚĂŐĞdĞĐŚŶŽůŽŐLJ>ƚĚĂŶŶŽƵŶĐĞĚƚŚĂƚƚŚĞĐŽŵƉĂŶLJ͛ƐW^ǁĂƐΨϬ͘ϴϲĂŶĚ
W^ǁĂƐΨϬ͘ϰϯĨŽƌƚŚĞƉƌĞǀŝŽƵƐLJĞĂƌ͘ŶĂůLJƐƚƐĞdžƉĞĐƚƚŚĂƚĚǀĂŶƚĂŐĞ͛ƐW^ǁŝůůĐŽŶƚŝŶƵĞ
to grow at 4% p.a. in perpetuity. Advantage has a payout ratio of 50% and expects that
this will continue to be the case in perpetuity. If the current share price of Advantage is
Ψϭϭ͘ϭϴ͕ǁŚĂƚŝƐĚǀĂŶƚĂŐĞ͛ƐŝŵƉůŝĞĚƌĞƋƵŝƌĞĚƌĂƚĞŽĨƌĞƚƵƌŶŽŶĞƋƵŝƚLJ͍
a) 8%
b) 9%
c) 10%
d) 11%
e) 12%
The University of Sydney ʹ FINC2011 Page 16
EƵŵĞƌŝĐĂů Answer Questions
ϰϳ͘ Lavender Group (LVG) Ltd has not paid any dividends previously and expects to pay its
first semi-ĂŶŶƵĂůĚŝǀŝĚĞŶĚŽĨΨϬ͘ϮϱŝŶŽŶĞLJĞĂƌƐ͛ƚŝŵĞ͘>s'ĞdžƉĞĐƚƐŝƚƐĞĂƌŶŝŶŐƐƉĞƌƐŚĂƌĞ
to grow at 8% p.a. compounded semi-annually for two years from today before reverting
to a growth rate of 4% p.a. compounded semi-annually forever. LVG maintains a constant
payout ratio. The shareholders of LVG require a return of 14.49% p.a. compounded
annually.WůĞĂƐĞƌŽƵŶĚLJŽƵƌĨŝŶĂůĂŶƐǁĞƌƚŽƚŚĞŶĞĂƌĞƐƚĚŽůůĂƌ;ĂůůŝŶƚĞƌŵĞĚŝĂƚĞƐƚĞƉƐ
ƐŚŽƵůĚďĞĐŽŵƉůĞƚĞĚƚŽϰŽƌŵŽƌĞĚĞĐŝŵĂůƉůĂĐĞƐͿ͘
ĂͿ What should be the price of one LVG share today?
ďͿ Suppose the expected future growth rate after the first 2 years was revised down
from 4% p.a. compounded semi-annually to 0% p.a. What impact would this have on
>s'͛ƐĐƵƌƌĞŶƚƐŚĂƌĞƉƌŝĐĞ͍
ϰϴ͘ Happy Hens Co had the following end-of-year share prices over the last five years:
Year Happy Hens Co Share Price
1 $15
2 $18.50
3 $16
4 $21
5 $19.50
They have paid a cash dividend of $5.50 at the end of both Year 1 and Year 4. tŚĂƚŝƐĂͿ
ƚŚĞ ĂƌŝƚŚŵĞƚŝĐ ĂǀĞƌĂŐĞ ƌĂƚĞ ŽĨ ƌĞƚƵƌŶ͕ ĂŶĚ ďͿ ƚŚĞ ŐĞŽŵĞƚƌŝĐ ĂǀĞƌĂŐĞ ƌĂƚĞ ŽĨ ƌĞƚƵƌŶ͍
WůĞĂƐĞ ƌŽƵŶĚ LJŽƵƌ ĨŝŶĂů ĂŶƐǁĞƌ ƚŽ ϰĚĞĐŝŵĂůƉůĂĐĞƐ;ĂůůŝŶƚĞƌŵĞĚŝĂƚĞƐƚĞƉƐ ƐŚŽƵůĚ ďĞ
ƌŽƵŶĚĞĚƚŽϰŽƌŵŽƌĞĚĞĐŝŵĂůƉůĂĐĞƐͿ͕Ğ͘Ő͘Ϭ͘ϬϬϯϮϭϳƐŚŽƵůĚďĞƉƵƚĂƐϬ͘ϬϬϯϮ͘
ϰϵ͘
The University of Sydney ʹ FINC2011 Page 17
^ŚŽƌƚ ŶƐǁĞƌ YƵĞƐƚŝŽŶ
5Ϭ͘ dŚĞĨŽůůŽǁŝŶŐƚĂďůĞĚĞƚĂŝůƐĂŶĂŶĂůLJƐƚ͛Ɛprediction of the probabilities of different states
of the market over the next year, along with the forecast returns on two shares in each
different market state.
State Probability Return on Share A Return on Share B
Great 0.1 31% 15%
Good 0.3 13% 18%
Average 0.4 12% 10%
Bad 0.2 -9% 3%
a) Calculate the expected return and standard deviation of returns on shares A and B.
b) If the covariance of returns between securities A and B is 0.00443, what is their
correlation coefficient?
