BA/MAR 2022/FIN552

FIN552 TEST
This paper consists of 36 questions in 10 printed pages.

1. Assume the following information for a stock:

Expected rate of return on the market 14 percent

Dividend payout ratio 40 percent

Expected dividend growth rate 10 percent

Using the Dividend Discount Model approach, calculate the price earnings ratio.
(1 mark)

2
A. 12.10
B. 11.00
C. 10.00
55 D. -10.00

Question 2 - 5 will be based on the following information.

K Inc.'s current earnings is RM35 per share, dividend payout ratio is 60 percent and the
cost of equity is 18 percent. Earnings and dividends are expected to increase at 20
N
percent annually over the next 5 years. After that, growth will immediately decline to 10
percent annually for an indefinite period of time.

2. What is the current cash dividend of K Inc.?

(1 mark)
FI

A. RM2,100
B. RM1.71
C. RM21
D. RM0.0171

3. What is the cash dividend of K Inc. at year 6?

(2 marks)
A. RM37.20
B. RM40.92
C. RM92.57
D. RM57.48

1
 BA/MAR 2022/FIN552

4. What is the selling price of K Inc. stock?

(1 mark)
A. RM653.18
B. RM511.54
C. RM718.50
D. RM465.03

5. What is the intrinsic value of K Inc. stock?

(2 marks)
A. RM114.89

2
B. RM424.53
C. RM110.46
D. RM376.62

6.
55The latest financial data of G Berhad are given as follows:

DPS (RM)

Total Asset Turnover

0.70

5.00

Net Profit Margin (%) 4.50

N
EPS (RM) 1.30

Total Asset/Equity 4.00

What is the return on equity (ROE) for G Berhad?

FI

(1 mark)
A. 15.75
B. 23.40
C. 29.25
D. 90.00

7. A _____ stock possesses a high probability of low or negative rates of return and a
low probability of normal or high rates of return.
(1 mark)
A. Growth
B. Defensive

2
 BA/MAR 2022/FIN552

C. Cyclical
D. Speculative

8. Which of the following statements concerning SWOT analysis is false?

(1 mark)

A. Strengths are the factors that give the firm a comparative advantage in the
marketplace.
B. Weaknesses result when the company has potential exploitable advantages
over other firms.
C. Opportunities are environmental factors that favor the firms.
D. Threats are environmental factors that can hinder the firm in achieving its

2
goals.

Question 9 - 13 will be based on the following information.

55
A fund manager needs to do a portfolio analysis based on the Markowitz Model. Given
below the information for two (2) stocks.

Stock Market Value (RM) Rates of return Variance (percent)

(percent)

Kpower 335,500 22.8 169

N
Dnex 664,500 35.3 324

9. What is the rate of return of the portfolio?

FI

(1 mark)

A. 35.43%
B. 28.79%
C. 21.89%
D. 31.11%

10. What is the standard deviation of the portfolio if the correlation is perfectly
positive?
(1 mark)
A. 16.32%
B. 12.59%

3
 BA/MAR 2022/FIN552

C. 10.36%
D. 19.23%

11. What is the standard deviation of the portfolio if the two (2) stocks are
uncorrelated?
(1 mark)
A. 8.72%
B. 9.45%
C. 12.73%
D. 15.48%

12. What is the standard deviation of the portfolio if the correlation is perfectly

2
negative?
(1 mark)
A. 7.60%
B. 5.34%
55 C. 9.65%
D. 6.76%

13. What is the right weight for a minimum variance portfolio if the correlation is -1?

(1 mark)
A. WKPOWER = 0.63, WDNEX = 0.37
B. WKPOWER = 0.58, WDNEX = 0.42
N
C. WKPOWER = 0.45, WDNEX = 0.55
D. WKPOWER = 0.39, WDNEX = 0.61
FI

Question 14 & 15 will be based on the following information.

Below is the information from The Edge Market.

A P E X

Alpha 1.5 1.8 2.1 2.3

Beta 0.5 0.7 1.1 1.3

Residual Variance 5.5 6.3 8.0 8.4

Market Value (RM) 10,000 20,000 25,000 45,000

4
 BA/MAR 2022/FIN552

Return on market 8
(percent)

Variance on market 49
(percent)

14. Based on the Single Index Model, what is the expected return of the portfolio?

(2 marks)
A. 10.47%
B. 8.54%
C. 11.81%

2
D. 9.23%

15. What is the standard deviation of the portfolio?

55 A.
B.
C.
D.
8.52%
6.51%
5.43%
7.52%
(3 marks)

16. JJ Berhad has an 8%, 30-year issued 18 years ago. The interest of the bond is paid
semi-annually. Currently, the bond sells at a premium of 25 percent. The required rate of
N
return is 14%. What is the bond’s value?
(2 marks)
A. RM705.13
B. RM655.86
FI

C. RM660.61
D. RM627.76

17. Ali bought three RM1,000, 11 ½% bonds on August 9 at market quotation 109.125.
At what price would Ali have to buy a RM1,000 bond for the rate of current yield to be
12%?
(1 mark)
A. RM1,000
B. RM958.33
C. RM479.17
D. RM1091.25

5
 BA/MAR 2022/FIN552

18. Mega Berhad has a 15-year bond that is currently selling at 90% of its par value with
10% coupon rate paid semi-annually. The bond was issued 5 years ago. The company
will call the bond after 7 years at the price of RM1,100. What is the bond’s annual yield
to maturity?
(2 marks)
A. 12.63%
B. 11.58%
C. 11.22%
D. 12.00%

Question 19 & 20 will be based on the following information.

You have invested in an 11%, RM1000 bond that will mature in another 5 years. Current

2
market interest rate stood at 6%. Based on your analysis on the regional and Malaysian
economy, you are predicting that the inflation rate is on the increasing trend and due to
this; interest rate will change by 150 basis points.
55
19. Using the current interest rate, what is the Macaulay and Modified Duration?

A. Macaulay Duration 4.08, Modified Duration 3.96

(4 marks)

B. Macaulay Duration 4.95, Modified Duration 4.80

C. Macaulay Duration 3.90, Modified Duration 3.75
N
D. Macaulay Duration 4.95, Modified Duration 3.96

20. Suppose the interest rates do change as you have predicted, what is the actual price
of the bond with the new interest rate?
FI

(1 mark)
A. RM1,500.00
B. RM1,143.72
C. RM1,148.65
D. RM950.00

Question 21 - 26 will be based on the following information.

Given below is the information retrieved from Bursa Marketplace for Aziata and Maksis:

Probability Rates of return (percent)

6
 BA/MAR 2022/FIN552

Aziata Maksis

0.24 14.50 14.30

0.36 18.50 20.10

0.15 10.30 11.40

0.25 15.80 13.55

21. What is the standard deviation for Aziata?

(2 marks)
A. 2.75%

2
B. 3.75%
C. 2.55%
D. 3.90%

22.
55 What is the standard deviation for Maksis?

A.
B.
2.27%
3.37%
(2 marks)

C. 3.10%
D. 3.67%
N
23. What is the coefficient of variation for Aziata?
(1 mark)
A. 0.18
B. 1.18
FI

C. 0.15
D. 0.22

24. What is the coefficient of variation for Maksis?

(1 mark)

A. 0.31
B. 0.21
C. 0.11
D. 0.25

25. What is the covariance between the two stocks?

(2 marks)

7
 BA/MAR 2022/FIN552

A. 8.27
B. 9.27
C. 7.27
D. 7.77

26. What is the correlation between the two stocks?

(2 marks)

A. 0.99
B. 0.89
C. 0.79
D. 0.69

2
27. In which phases of the Industry Life Cycle is the following:
· average sales growth
· significant competition
55 · normalize return on economy
· the longest phase
(1 mark)
A. Pioneering phase
B. Growth phase
C. Mature growth
D. Stabilization or maturity phase
N
28. Consumers tend to modernize, renovate and purchase new equipment to satisfy
the rising demand. Which of the following Business Cycle periods is suitable for the
statement?
(1 mark)
FI

A. Recession
B. Peak
C. During recovery
D. Early recovery

29. One of the economic trends is the structural changes in the economy and arise
from the ups and downs of the business cycle.
(1 mark)
A. True
B. False

8
 BA/MAR 2022/FIN552

30. A lagging indicator is a measuring economic factor that changes before the
economy starts to follow a pattern or trends. For example, If the unemployment rate is
rising, it indicates that the economy has been doing poorly.
(1 mark)
A. True
B. False

31. Which of the following have a positive effect on economic variables to the equity
market?
(1 mark)

A. Positive growth in GDP and continuous increase in industrial production.

2
B. Increase in inflation rate and high unemployment.
C. Increase in interest rate and continuous increase in GDP.
D. Increase in unemployment rate and industrial production.

32.
55 Which of the following is correct for the bond prices determinants?

A.
(1 mark)

Current market interest rate, employment, liquidity and political risk.

B. Current market interest rate, inflation, employment and currency exchange.
C. Current market interest rate, inflation, liquidity and political risk.
D. Current market interest rate, inflation, currency exchange and political risk
N
33. Convertible bond is a hybrid security that has both debt and equity features. The
bond will pay back the principal amount on its maturity date and pay a specified amount
of interest on specific dates.
FI

(1 mark)
A. True
B. False

34. The following are correct on advantages of issuing bond accept:

(1 mark)

A. bond can be repaid before the maturity date if there is a call provision.
B. bond interest is tax deductible.
C. bonds increase debt and can affect the market’s perception of the firm.
D. bond is a temporary source of financing.

9
 BA/MAR 2022/FIN552

35. Rating on bonds imply the creditworthiness of the issuers and whether the
repayment is secured by the company assets. Which of the following is the type of bond
rating in the prime category?
(1 mark)
A. AAA, AA and BB
B. AAA, A and BB
C. AAA, AA and BBB
D. AAA, A and BBB

36. Debenture is a type of a fixed asset with collateral. The issuer has general
creditworthiness and good reputation to gain bond holders' belief that the bond issuer is

2
unlikely to default on the payment.
(1 mark)
A. True
55 B. False

END OF QUESTIONS
N
FI

10