Question

[20] QUESTION FIVE 5.1 Using the following information for Poimex's portfolios, answer question 5.1.1 and 5.12 that follow: Primex invested R2 000 000 in a portfolio with the following characteristics: Description of share/bond Investment (R) Beta Retail R400 000 0.8 Industrial R500 000 1.5 Resources R686 000 1.8 Risk-free asset R414 000 0 5.2 The return on the market is 17% and the risk free rate is 8%. 5.1.1 Calculate the Beta for Poimex's portfolio 5.1.2 Calculate the expected return on Primex's portfolio (4) Recently, ABC Company paid an annual dividend of R5.5 per share. The dividend per share is expected to grow at 10% per year for the next two years and then grow by 5% thereafter Shares in other companies with a similar level of systematic risk to ABC yield 15% return on equity. What is the market value of ABC Company? (10) QUESTION SIX [20] 6.1 The returns on Amanda Ltd's share over the past five years are reported in table below Year Return 2016 6% 2017 -12% 16% 2018 2019 2020 38% 11% (2) 6.1.1 Calculate the average return for on Amanda's share over the five year 6.12 Calculate the variance and the standard deviation of Amanda's return over this period (8) 2

Subject Investment

Answer 1

Calculation of ER under CAPM model

Retail	= Rf + Beta ( Rm-Rf)	= 8 + .08 (17-8)	= 8 + .08 (9)	= 8 + 7.2	15.2
Industrail	= Rf + Beta ( Rm-Rf)	= 8 + 1.5 (17-8)	= 8 + 1.5 (9)	= 8 + 13.5	21.5
Resources	= Rf + Beta ( Rm-Rf)	= 8 + 1.8 (17-8)	= 8 + 1.8 (9)	= 8 + 16.2	24.2
Risk free Asset	= Rf + Beta ( Rm-Rf)	= 8 + 0 (17-8)	= 8 + 0	=8	8

		A	B	C = A *B	D	E = B * D
Description	Investment	Weight	Beta	Weighted Beta	Return	Weighted Return
Retail	400000	0.2	0.8	0.16	15.2	3.04
Industrail	500000	0.25	1.5	0.375	21.5	5.38
Resources	686000	0.343	1.8	0.6174	24.2	8.30
Risk free Asset	414000	0.207	0	0	8	1.66
	2000000			1.15		18.37

From the above table we can see the Weighted Beta is 1.15 and Weighted Return is 18.37

Question 2

Year	CF	CF	PVF @15%	Disc CF
1	D1	6.05	0.8696	5.26
2	D2	6.66	0.7561	5.03
3	P2	69.9	0.7561	52.85
				63.15

P2 = D3/Ke-g

= 6.66*105%/15%-5%

= 6.99/ 10%

= 69.9

Value of the company = No of shares * Value per share i.e 63.15

Question 3

Mean or Average Return = 6+ -12+ 16 + 38 + 11/5

Mean x̅ = 11.8

ER	x - x̅	(x-x̅)^2
6	-5.8	33.64
-12	-23.8	566.44
16	4.2	17.64
38	26.2	686.44
11	-0.8	0.64
∑ (x-x̅)^2		1304.8

Variance = ∑ (x-x̅)^2/n-1

= 1304.8/5-1

= 326.2

Standar Devaition = √ Variance

= √326.2

= 18.061

Please comment if you have any doubts