TIME-CONSTRAINED ASSESSMENT ONLINE
TIME-CONSTRAINED ASSESSMENT ONLINE
SAMPLE EXAM PRACTICE QUESTIONS
(Please do NOT distribute)
Important Note: Sample questions are provided for individual practice only and not to be used for prediction of the upcoming exam questions)
COURSE NAME:INTRODUCTION TO FINANCE
COURSE CODE:FINA501
TIME ALLOWED:2 hours (To be completed in 3 hours)
TIME & DATE:
TOTAL MARKS:50 marks
-34459392922
Assessment INSTRUCTIONS, Academic Integrity Guidelines and additional information read all before commencing
Assessment Instructions
Please emailyour Course Coordinator and BEL Exam Office (yih.pin.tang@aut.ac.nz, BEL: belexams@aut.ac.nz ) immediately if you have any technical issues with youronline assessmentsubmission on Canvasusing your AUT email address. Include in your email a brief explanation of the issue, your Student ID, Course code, a screenshot of the issue including the time stamp. Email subject line: (Online Submission: Course Name Course Code - Student ID Student Name)
This is an individual assessment there must be no discussion or collaboration with anyone else. No component of this assessment may be shared with any person, in any manner other than your course coordinator or BEL Exam office.
Download the exam questions (Word document/template). Open the header of the document and insert your name and ID number.
You have one attempt to submit this assessment. Ensure frequent saving and do not leave the assessment before clicking Save and Submit.
Answer ALL the questions in the Word document/template. All answers must be in black or dark blue colour; all other colours will not be accepted for marking.
During the first 10 minutes of the exam time, read through all questions. If you have any question on the instructions or the exam questions, email the course coordinator at yih.pin.tang@aut.ac.nz . Try to clarify all questions within the first hour of the exam so that you can focus on answering the exam questions in the remaining exam time.
Present your answers in the space provided under each question. You should show relevant formula(s) and all working in your calculations. If Excel is used, you should clearly specify the Excel formula and all relevant input values.
Please use this Word document as template and provide all your answers in this Word document as instructed above. Please continue to keep saving all your work in this Word document. When you have completed the entire exam, make sure you do the final SAVE of the document before submitting your work. There will be only ONE submission attempt on Canvas.
Submission: via the course Canvas/Assignment/Final Exam drop box by deadline (New Zealand time). Remember to click 'submit' and then OK. Submission after the deadline will NOT be accepted for marking. There will be only ONE submission attempt on Canvas. PDF file format is recommended but Word format is also acceptable.
EXAM SUMMARY:
Section Marks Suggested time (Minutes)
Section 1 (Short Answer/ Calculation) 40 90
Section 2 (Theory/Discussion) 10 30
Total 50 120
ACADEMIC INTEGRITY GUIDELINES
AUT takes Academic Integrity very seriously and you are reminded that the following actions may be deemed to constitute a breach of the General Academic Regulations Part: Academic Discipline, Section 2 Dishonesty During Assessment or Course of Study
2.1.1 copies from, or inappropriately communicates with another person2.1.3 plagiarises the work of another person without indicating that the work is not the students own using the full work or partial work of another person without giving due credit to the original creator of that work2.1.4 collaborates with others in the preparation of material, except where this has been approved as an assessment requirement.
2.1.5 resubmits previously submitted work without prior approval of the assessment board2.1.6 using any other unfair meansAdditional Information
Your assessment responses must be your own work. You may be required to orally defend your responses to assessment questions.
You must quote or paraphrase and reference any material that you take/use/adapt from somewhere elseYou are permitted to:
Consult the textbook(s).
Consult University-provided course materials on Canvas or in printed form.
Consult reference material from the University library or from credible online sources e.g. recognised publishers, government, educational institutions, research organisations.
Consult notes that you have produced yourself.
Communicate only to authorised University staff members for the purposes of clarification and logistical/technical trouble shooting (insert relevant person but it could be someone like Lecturer or an assessment help line)
You are NOT permitted to:
Change any questionHave someone else do assessment questions for you.
Receive from, help or ask another student with assessment questions or hints.
Refer to or re-use identical or similar question solutions as might be found on social media, chat forums, study help type websites, study note sharing websites or via other means.
Communicate or collaborate with another student or person in anyway during the assessment without explicit permission from a university staff member (other than to authorised University staff members).
Let your assessment responses become available or visible to other students.
Provide the assessment questions, assessment materials or assessment responses to another student or person via any means (other than to authorised University staff members).
Post or communicate assessment questions or other materials via forums, chat boards, study help type websites, instant messaging platforms, photograph and send via mobile devices to others.
Cut and paste from any other material without referencing.
SECTION 1: SHORT ANSWERS(TOTAL: 40 MARKS)
Instructions: You must show your working and relevant formula(s) for each answer to obtain full marks. Where applicable, round your final answer to two decimal places unless otherwise stated.
Question 1: Portfolio and Rates of Returns (10 marks)
You bought a share for $25.80. After 1 year, you sold the share for $27.5. The share paid a $1.40 dividend per share.
What was your total dollar return? Show all work and formula(s) clearly. Round only the final answer to two decimal places, where applicable. (1 mark)
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What was your total percentage return? Show all work and formula(s) clearly. Round only the final answer to two decimal places, where applicable. (1 mark)
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Suppose the risk-free rate is 2.75%, the expected market return is 13.5%, and Hi-Growths share has a beta of 1.35.
Based on the CAPM, what is the expected return on this share? Show all work and formula(s) clearly. Round only the final answer to two decimal places, where applicable. (2 marks)
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Compare the beta and expected return of this share with the market beta and expected market return. Include relevant figures in your discussion; relate these figures with the concept of risk and expected return. [Note: The discussion must be in your own words. Word limit: 60 words, excluding figures; answers beyond word limit will not be marked.] (1 mark)
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You own a share portfolio invested 10% in shares of A, 30% in shares in B, 35% in shares in C and 25% in shares in D. The betas for these four shares are 0.8, 0.9, 1.2 and 1.4, respectively. What is the portfolio beta? Show all work and formula(s) clearly. Round only the final answer to two decimal places, where applicable. (2 marks)
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You have $100,000 to invest in a portfolio that has two companies shares: Share A and Share Z. Share A has a beta of 1.30 and an expected return of 18.60%, while Share Z has a beta of 0.80 and an expected return of 12.60%. You target to have a portfolio beta of 1.10.
How much (in percentage and dollar amount) will you invest in each share? (2 marks)
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What is the expected rate of return of your portfolio? (1 mark)
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Question 2: Stocks and Stocks Valuation (10 marks)
Neat Nut Inc. does not expect to initiate dividends over the next four years. The company will then pay a dividend of $1.5 per share five years from today and will increase the dividends by 3.5% per year thereafter. The company has an 11% required rate of return.
What is the companys stock price in today's dollars if the desired rate of return is 11%? [Clearly show all formula(s), steps, relevant figures and final answer. Round only the final answer to two decimal places, where applicable.] (3 marks)
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Identify two or more possible reasons that the company does not plan to initiate dividend in the beginning years. Briefly explain. [Note: The discussion must be in your own words. Word limit: 60 words, excluding figures; answers beyond word limit will not be marked.] (1.5 marks)
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Renew & Reuse Ltd has preferred stock with a par value of $50 and an annual $2.25 cumulative dividend. An investor is willing to pay $13 for this preferred stock. What yield or rate of return is this investor seeking for the investment? Show all work and formula(s) clearly. Round only the final answer to two decimal places, where applicable. (1.5 marks)
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The next dividend payment by Antique Preservation Ltd will be $1.25 per share. The dividends are anticipated to maintain a growth rate of 4.5% forever. If the companys share currently sells for $28.75 per share, what is the required return? Show all work and formula(s) clearly. Round only the final answer to two decimal places, where applicable. (2 marks)
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All Organic Ltd shares currently sell for $26.45 per share. The market requires a return of 11.5% on the firms shares. If the company maintains a constant 3.5% growth rate in dividends, what was the most recent dividend per share paid on one share? Show all work and formula(s) clearly. Round only the final answer to two decimal places, where applicable. (2 marks)
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Question 3: Bonds and Bond Valuation (10 marks)
E-Learning Company will issue a zero-coupon bond this coming month. The projected yield for the bond is 5%. The par value of the bond is $1,000. [Show all steps, workings, and formula(s) clearly. Round final answer to two decimal places, where applicable.]
What is the amount of coupon payment? Briefly comment on your answer. (0.5 mark)
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What is the price of the bond using a semi-annual convention if the maturity is 30 years? (1.5 marks)
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New Creation Company is about to issue a bond with semi-annual coupon payments, a coupon rate of 6.5%, and par value of $1,000. The yield-to-maturity for this bond is 7%. What is the price of the bond if the bond matures in 25 years? [Show all steps, workings, and formula(s) clearly. Round final answer to two decimal places, where applicable.] (2 marks)
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An investment banking firm for New Era Corporation has forecasted the prices for the companys new issue of bonds under several different economic conditions as displayed in the following table. What is the expected (average) selling price of the bond? [Show all steps, workings, and formula(s) clearly. Round final answer to two decimal places, where applicable.] (1.5 marks)
Recession Steady Boom
Probability .55 .35 .10
Bond price $950 $1,000 $1,175
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All Tracks Investments Ltd is buying a 90-day bank bill today. The bill matures in 90 days time. The bill has a face value of $100,000 and the current market yield on this bill is 2.55% pa. What is the price that the company will have to pay to buy the bill today? [Show all steps, workings, and formula(s) clearly. Round final answer to two decimal places, where applicable.] (2 marks)
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Consider a thirty-year, 7.5% coupon, semi-annual bond. A broker quotes a price of $1050. What is the bonds rate of return? [Show all steps, workings, and formula(s) clearly. Round final answer to two decimal places, where applicable.] (2.5 marks)
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Question 4: Time Value of Money (10 marks)
As part of your investment plan, you have set the goal of buying a $1,000,000 property in 10 years.
You assume that the bank will require you to deposit 20% of the house price and approve your mortgage loan of 80% of the house price. What is the amount of deposit you must have in 10 years? (0.5 mark)
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If you currently have no saving allocated for this financial goal of saving for the deposit of the house, how much do you have to save monthly into your bank account that pays 3.75% annual interest rate, compounded monthly? [Clearly show all formula(s), steps, relevant figures and final answer. Round only the final answer to two decimal places, where applicable.] (1.5 marks)
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Suppose you currently have a saving of $100,000 in the bank earning an annual interest rate of 3.75%, compounding monthly. In addition to this saving, you plan to save more periodically by depositing cash into your bank account that also earns 3.75% annual interest rate, compounded monthly. How much do you need to contribute monthly to attain your saving goal (the amount of house deposit)? [[Clearly show all formula(s), steps, relevant figures and final answer. Round the answer to two decimal places, where applicable.] (1.5 marks)
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Compare your answers in parts (ii) and (iii). Which monthly contribution is lower? Clearly explain why. Use relevant figures to illustrate your point. (1.5 marks)
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Prepare an amortisation schedule for a four-year loan $8,500. The interest rate is 9.5% per year with monthly compounding and the loan calls for equal monthly payments.
Calculate the monthly loan repayment. [Clearly show all formula(s), steps, relevant figures and final answer. Round only the final answer to two decimal places, where applicable.] (1 mark)
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Fill in all relevant values under each column in the table below. Show the formula(s) used to calculate each column. (2 marks)
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Time
(month) Periodic (Annuity) Loan Payment ($) Interest
Expense
($) Principal
Repayment
($) Outstanding Loan Balance ($)
0 1 2 3 4 Display formulas here:
Interest expense: Click here to enter text.Principal repayment: Click here to enter text.Outstanding loan balance: Click here to enter text.State the interest amounts paid in the first and final periods. Which of these two periods has a lower interest amount? Clearly explain why this is the case. Use relevant figures for illustration. Also comment on the outstanding loan balance at the end of final period. (2 marks)
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Section 2 (THEORY/DISCUSSION)(TOTAL 10 MARKS)
Question 1: Dividends and stock investments (5 marks)
In this course, you have learned that not all public companies would pay dividends. Clearly answer the following questions.
Some companies choose to pay dividends. Clearly list and explain one or more reasons for paying dividends. [Word limit: 50 words. Answers beyond the word limit will not be marked. Answers must be written in your own words.] (1 mark)
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Certain companies choose not to pay dividends. Clearly list and explain two or more reasons for not paying dividends. [Word limit: 50 words. Answers beyond the word limit will not be marked. Answers must be written in your own words.] (2 marks)
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Explain why some investors would prefer dividend-paying stocks and why some investors would invest in non-dividend paying stocks. [Word limit: 50 words. Answers beyond the word limit will not be marked. Answers must be written in your own words.] (2 marks)
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Question 2: Portfolio risk and diversification (5 marks)
In this course you have learned about systematic risks, unsystematic risks, beta, standard deviation and the measuring investment risks including that of a well-diversified portfolio.
State and explain in your own words the two major types of risks related to diversification. Explain why and how one of these risks can be diversified away. (2.5 marks)
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Clearly explain how risks of a well-diversified portfolio is measured. Further elaborate why this measurement is appropriate. You may use an example to clearly illustrate your points. (2.5 marks)
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- END OF EXAM PLEASE ENSURE YOU SAVE AND SUBMIT YOUR WORK -
