INV2601 Assignment 1 S2 2022

Share Sahara Limited Kalahari Limited Market Index
15.60% 9.40% 4.20%
Standard deviation
Correlation coefficient with 0.38 0.75 1.00
the market index
Estimated return for the next 12.10% 15.50% 12%
year


Assume a risk-free rate of 8% and a return on the market index of 12%.
Calculate the beta coefficient of both shares.


a.
0.38 0.75




b.
0.38 1.68




c.
1.41 0.75




d.
1.41 1.68


Question 2
Question text
Return on the market portfolio 8%
Return on equity 15%
Beta 1.2
Risk-free rate of return 5%
Current earnings per share R3.20
Current dividends per share R1.76

,Calculate the market premium for Deal Corporation.


a.
3%


b.
5%


c.
4%


d.
8%


Question 3
Question text
Which of the following are characteristics of well-functioning markets?
a) Prices take time to adjust to new information.
b) Transactions can be concluded at low costs.
c) The assets can be bought and sold slowly at prices that are far from the previous
transactions.
d) Prices change greatly from one transaction to the next unless substantial new
information becomes available.
e) The participants must be able to timeously and accurately determine the volume
and prices of past transactions and all current bids and offers.




a.
a and c


b.
b and e


c.
c and d

, d.
d and a




Question 4
Question text
Return on the market portfolio 8%
Return on equity 15%
Beta 1.2
Risk-free rate of return 5%
Current earnings per share R3.20
Current dividends per share R1.76


Calculate the value of Deal Corporation based on the constant growth model.




a.
R95.14




b.
R101.56




c.
R502.86




d.
R544.34