TMA2_Corporate Finance Jan 2018.docx - WAWASAN OPEN UNIVERSITY BBF304/05 Corporate Finance TMA 2 Instruction Answer all questions Total Marks 100 UNIT 3

TMA2_Corporate Finance Jan 2018.docx - WAWASAN OPEN...

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WAWASAN OPEN UNIVERSITY BBF304/05 Corporate Finance TMA 2 Instruction: Answer all questions Total Marks: 100%

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UNIT 3 Question 1 (a)Name and provide examples of three broad categories of financial assets available in Malaysia’s financial system. (12 marks) (b)Differentiate between unsystematic risk and systematic risk with examples. (10 marks) Unit 3 Question 2 Consider the two (excess return) index-model regression results for stocks Ali Baba and Apple. The risk-free rate over the period was 3.5%, and the market’s average return was 14%. Performance is measured using an index model regression on excess return. Ali Baba Apple Index model regression estimates 3.5% + 1.4 (r m r f ) 3.5% + 2.1 (r m – r f ) Standard deviation on excess return 16.0% 23.4% Calculate the following statistics for each stock: (a) Sharpe measure (8 marks) (b) Treynor measure (8 marks) UNIT 4 Question 3 Firms will need to decide whether they should retain all the earnings or distribute it out as cash income to the shareholders. However, a firm’s earnings distribution policy is shaped by

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