ĐỀ THI THỬ (GIỐNG 100% ĐỀ FINAL EXAM, LAST

SEMESTER ONE OF MY STUDENTS STUDY EXACTLY LIKE

THIS AND GET 49/50 FOR FINAL EXAM)

QUESTION 1 (10 MARKS)

a. What is the fair value of a stock that has a dividend just paid of $10.78, which is
expected to grow indefinitely at 1.76% pa, and that stock has a cost of capital of
10.65%? (1 mark)

b. If the historical dividend yield of a stock is 4.53% and the stock’s cost of capital is
13.58%, what is its expected growth rate? (1 mark)

c. In dollars and cents, what would you pay for a company that generated profits of
$2.15 per share on its 90 million shares from which it paid a dividend of $ 1.03 per
share and has equity capital of $1150 million if its cost of capital is 9.68%? (1 mark)

d. In dollars and cents, what is the maximum you would pay per share for a company
that

• generated profits of $12.774 per share,

• has 765million shares on issue,

• had just paid a dividend of $9.695 per share,

• which according to its accounts has equity capital of $134.5bn,

• has a standard deviation of 44.63%,

• where the standard deviation of the market is 17.84%,

• where the return of the market is 15.02%,

• where the stock's correlation with the market is 0.84, and

• the risk-free rate of return is 5.42%? (2 marks)

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e. In dollars and cents, what is the maximum price you would pay for the shares of a
company that had the following operating cash flow and capital expenditure over the
next four years provided in the table below when.

Your estimated value of the company in the fifth year, when you planned to sell your
shares in the company is $970M, the weighted average cost of capital of the company
is 12.86%, its value of debt is $325M, and there are 40M outstanding shares? (3 marks)

Period Operating cash flow Capital expenditure

1 $35,000,000 $7,000,000
2 $36,750,000 $6,500,000
3 $39,500,000 $6,000,000
4 $42,500,000 $6,500,000

f. What is the P/E ratio for a stock which has a consistent payout ratio of 62%, a return
on equity of 20% and a cost of capital of 13%? (2 marks)

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QUESTION 2 (10 MARKS)

The Efficient Markets Hypothesis (EMH) was described by Eugene Fama to describe
the behaviour of financial markets.

1. List, and for each describe, the three forms of informational market efficiency. (3
marks)

2. Explain the two tests for weak form market efficiency. (2 marks)

3. Behavioural finance has a different perspective to how markets work from that of the
EMH. Discuss in less than 200 words how behavioural finance would explain the
relative return behaviour of growth stocks using two investor biases. (2 marks)

4. An argument against market efficiency is the occurrence of market crashes. The logic
is that if markets are efficient, then all information about all stocks is known and
therefore crashes can’t happen. Discuss the argument with relevance to the efficient
market hypothesis. (max 100 words) (1 mark)

5. Explain why it is not possible to prove market efficiency, and state the name given to
the problem. (2 marks)

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QUESTION 3 (23 MARKS)

Today’s date is 07 March 2024. Consider the following debt securities.

Official Cash Rate: is 2.08%

Bank Bill: A bank bill with a face value of $1.16 million, which has 127 days to maturity
and is trading at a yield of 1.08%

Bond: A bond with a face value of $32.67 million with maturity of 11 July 2037, paying
coupons semi-annually at a rate of 2.13% and trading at a yield of 1.82% p.a.

Required

a. Describe the shape of the yield curve. (1 mark)

b. What is the fair market price for?

I. Bank bill (2 marks)

II. Bond (8 marks)

c. 76 days later, following the tightening of monetary policy by the Reserve Bank of
Australia, the yield curve has shifted such that all yields across the yield curve are now
higher by 0.74%. What is the fair market price for your debt securitites now?

I. Bank bill (2 marks)

II. Bond (8 marks)

d. Presuming you purchased the bond and bank bill on 07 March 2024 and sold them
both 76 days later, in percentage terms to two decimal places, what was the annualised
holding period return for your portfolio over the period? (1 marks)

e. If fixed income has a lower expected return than shares, discuss why superannuation
funds hold global fixed income in their default portfolios. (max 100 words) (1 mark)

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QUESTION 4 (5 MARKS)

An investor buys an asset at an initial cost of $21,543,628.

The investor believes that at the end of one year, the asset could have four possible
values. These values and probabilities are provided in the table below.

Scenario Expected value Probability

A 17,960,000 30%
B 23,217,000 35%
C 24,089,000 25%
D 28,247,000 10%

Required

a. In dollars and cents, what is the expected value of the asset in 1 year? (2 marks)

b. In percentage terms to 2 decimal places, what is the expected return on the asset? (1
mark)

c. In percentage terms to 2 decimal places, what is the expected standard deviation of

the return of the asset? (1 mark)

d. What is the coefficient of variation of this portfolio? (1 mark)

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QUESTION 5 (9 MARKS)

Consider that you have $5,372,176 to invest across three assets using the price
weighted methodology. Your analysis of these assets has provided the information in
the two tables below.

To 2 decimal places answer the following questions. (Note: numbers in red are
negative)

Asset A B C
Price at the beginning of the yeat (in $) 154.73 136.85 87.32
Expected price at the end of the year 180.94 162.97 104.86
(in $)
Standard deviation (%) 35.80% 42.30% 31.90%

Correlation A B C
A 1.00 -0.12 0.78
B -0.12 1.00 0.44
C 0.78 0.44 1.00

Required

a. What is the expected compound annual growth rate of return for this portfolio, in
percentage terms? (1 mark)

b. What is the expected continuously compounded return on this portfolio in percentage

terms? (1 mark)

c. In dollars and cents, what is the expected value of this portfolio after 12 months? (1
mark)

d. What is the standard deviation of this portfolio, in percentage terms? (6 marks)

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QUESTION 6 (7 MARKS)

Consider the following after-tax cash flows for two mutually-exclusive projects (Note:
number in red are negative)

Year Project A Project B

0 -10,030,000 -6,789,000
1 2,456,000 1,876,000
2 2,614,000 2,452,000
3 3,891,000 2,976,000
4 6,012,000 3,793,000
5 6,853,000 4,629,000

Assume an 17.85% p.a, discount rate applies to all projects

Required

a. Calculate the NPV for each project to 2 decimal places (6 marks)

b. Which project will you accept ? Why ? (1 mark)

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QUESTION 6 (8 MARKS)

Consider the following table which provides a comparison of the returns for a portfolio
and its benchmark.

Required

a. Calculate the annualised return of the portfolio and the benchmark (2 marks)

b. Calculate the portfolio alpha (1 mark)

c. Calculate the tracking error of the portfolio (2 marks)

d. Calculate the information ratio of the portfolio (1 mark)

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e. If the risk free rate is 2.50%, the return of the market is 11.85%, the value risk
premium is 3.01%, the small cap premium is 1.62%, the momentum premium is
41.90% and the portfolio’s exposure to these three factors was -0.29, -0.71, and 0.18,
respectively, as a percentage to 2 decimal places determine the amount of Carhart’s
alpha that was produced by the manager of the portfolio (2 marks)

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QUESTION 7 (9 MARKS)

The board of a company (Firm A) has agreed to pursue a new project and the manager
is directed to organise debt funding of $350 million for the life of the project, which is 13
years. The CFO speaks with several banks and determines that it may borrow:

• Floating at BBSW + 3.15%pa

• Fixed rate debt at 13.45%pa

A large corporate (Firm B) has launched a takeover bid for a rival firm, that has fallen on
hard times, and the BOD of the suitor company has been directed to raise funds for the
takeover, which is expected to be successful. The BOD meets with the deal team and
learns that if the takeover is successful at the current offer price that the transaction will
be cash flow positive immediately and that funding is required for 10 years. The BOD
also has the view that interest rates are going to decline over that period and therefore
prefers raising floating rate debt. The BOD speaks with their banker and learns that it
may borrow:

• Floating at BBSW + 1.85%pa

• Fixed rate debt at 9.25% pa

Government debt is trading at 2.15% pa

Both firms happen to approach the same investment bank, you, to explore funding their
requirements via a swap.

You are willing to enter into an intermediated swap with both parties, on the condition
that you make 0.15% from each party of the swap transaction.

Required

Determine the swap strategy that maximises the benefit of the swap for each party,
including your investment bank.

a. Specify the swap cashflows (6 marks)

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b. Calculate the borrowing costs and the benefit to each party from entering into
the swap. (3 marks)

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QUESTION 8 (12 MARKS)

The risk free rate is 1.85% and a portfolio has a sensitivity to the nsk factors outlined in
the table below Using the information provided to 2 decimal places answer the following
questions (Note numbers in red are negative)

Factor Equity Risk Premium SmB HmL

Sensitivity s = 0.35 h = 0.69
Risk premium 9.23% 1.91% 3.15%

a. A portfolio delivered a return of 14.20% pa over a three year period

An asset consultant uses the Capital Asset Pricing Model to assess manager
performance, while the investment manager assesses its performance using the Fama-
French model

i. According to the investment manager, how much Carhart alpha did the portfolio
generate over the period? (2 marks)

ii. If the asset consultant assessed that the investment manger generated 1.79%
pa of Jensen's alpha over the period, what value of beta is the consultant using
for the portfolio? (2 marks)

iii. If, over the period, the market had a variance of 0.0368 whilst the portfolio had
a variance of 0.0582, and using the consultant's value for beta, what must be the
comesation of the portfolio with the marker? (2 marks)

b. Consider two simitar assets that are trading in the market Asset A has an expected
retum of 18.3%, whilst asset B has an expected returm of 12.9%

i. Explain which asset has the lower price and in terms of Modern Portfolio
Theory explain why that is the case ? (1 mark)

ii. In terms of value versus growth, which asset would be regarded as a value
stock and which would be regarded as a growth stock? (2 marks)

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c. Risk and retum are related may be used as a summary of the "Portfolio Selection
paper by Harry Markowicz Explain (max 400 words) (3 marks)

• what “risk and return” means for investors

• if risk is predictable
• how risk is measured under Modern Portfolio Theory, and
• if this measure encapsulates all risks

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QUESTION 9 (7 MARKS)

Consider the information for AGL provided in the two tables below and answer the
following questions.

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Required

a. To 2 decimal places calculate the current ratio for AGL in 2022. (1 mark) 1.21

b. In percentage terms and to 2 decimal places calculate the leverage ratio for AGL for
2022. (1 mark)

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c. Calculate the net profit margin for AGL in 2022 in percentage terms to 2 decimal
places. (1 mark) year 2: 18.3%
year 1: 17.86%
d. Calculate the return on assets for AGL over 2022 in percentage terms to 2 decimal
places. (1 mark) year 2: 19%
year 1: 17.01%
e. Calculate the return on equity for AGL over 2022 in percentage terms to 2 decimal
places. (1 mark) year 2: 36.55%
year 1: 32.73%
f. Calculate the days receivable for AGL over 2022 in percentrage terms to 2 decimal
places. (2 marks) year 2: 45.05
year 1: 49.01

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