POLITEKNIK SULTAN ABDUL HALIM MUADZAM SHAH COMMERCE DEPARTMENT DISEMBER 2011 P5127 BUSINESS FINANCE ASSINGMENT 1 ANSWER

ALL QUESTIONS THIS ASSINGMENT MUST BE PREPARED INDIVIDUALLY.

1.

Reinadz Corporation is considering an investment in one of two common Stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return? (9 marks) Stock A 0.30 0.40 0.30 5% 15% 25% 0.20 0.30 0.30 0.20 Stock B 10% 15% 20% 25%

2.

Reinadz Corporations bond has an 11% coupon rate. The interest is paid semiannually and the bonds mature in 11 years. Their par value is RM1, 000. If your required rate of return is 8%, what is the value of the bond? What is the value of the bond if the interest is paid annually? (8 marks)

3.

The common stock of Reinadz Corporation (RC) paid RM 1.80 in dividends last year. Dividends are expected to grow at an 8% annual rate for an indefinite number of years. i. If RCs current market price is RM23.50, what is the stocks expected rate of return?

( 4 marks)

ii.

If your required rate of return is 12%, what is the value of the stock for you?

(4 marks)