AFC2240 Equities and Investment Analysis
Tutorial 1 Solution Guide Semester 2, 2008
Q.1 Why does every Australian employee have an interest in investment?
Because each employee compulsorily has 9% of gross salary invested in a super
fund. The employee has
Correct '1’ Flag question
in regression of capital asset pricing modei, the intercept of excess returns is classiﬁed as
Select one:
' a. Tenors reward to volatiiity ratio
(E) b. Jensen's sipha J Your answer is correct!
' - c. Sharpe‘s reward to 1trans bii
LIES-tin” LAJIIULTI. T ring IILIISHLILII
8 Mark 2 out of 2
According to the APE the value of the ﬁrm-speciﬁc factor is expected to be, on average
Select one:
IE) 3. zero. «f er answer is correct!
" - tr. more important than the value of the common factors
Garrett F Flag queetiei
Question
5 Mark2cutnf2
The expected return fcra stack. calculated using the CAPM. is 25%. The risk free rate is 15% and the beta of the stock is
ELSE. Eaicuiate the impiied market risk premium.
Select one:
' a. 151%
' b. 14.38%
(
II I -.- -
2 Mark2crutof2
The expected return for a stock, calculated using the CAPMi is 1 0.5%; The ma rket return is 915% and the beta of the stock
is ‘I .50. Calculate the implied risk—free rate.
Select one:
' a. 14.33%
' b. 13.91%
' c.1150q-E.
IE} (
Mark2 autofi
The unsystematic risk which can be eliminated and the market risk is the
Select one:
" a. aggregate risk
(9 h. remaining risksf' Your answer is correct!
" c. effective risk
_" d. ineffective risk
Your answer is correct.
The correct answer is:
1ir‘v'hich of the foiiowing statements is correct?
Select one:
G) 3. Both the CAPM and the APT state that there is a linear relation between risk and expected return. «f ‘r'our answer
is correctI
' c. The CAPM is considered to be iess restrictive than the
Question Dermot 1? Flag question?
1 2 Markimtofz
Factor E(Rm}-Rf 5MB HML
Sensitivity bi = den si = {1.44 hi = [1.23
Risk premium 15% £95 4%
An asset hes the above sensitivities to the market portfolio, firm size, and hook—tormerket nsk premium. The risk—f
Question II'lCDITECt ? W.
1 Mark I] out of 5'.
Suppose you pay QED for a $1 £1,000 per Treasury Bond maturing in 2 months. What is the effective annu ai percentage
rate of return for 1this investment?I
Select one:
"f a. 3.0G‘ia
G) b. 3.09% X Your answer i
Mark2outof2
For a two stock portfolio containing Stocks i and jr the correlation coefficient of returns (raj) is equal to the square root of
the covariance {COW}-
Select one:
' Two
(3' False «I
Your answer is correct!
The correct answer is 'False‘.
Dorrec
IZiitinrreiot 'E’ Flag guesticng
MarchutofE
Which of the following statements is true?
Select one:
' a. If a market is weak-form efﬁcient, it is impossible to consistently earn an abnormal return using any available
information.
' b. if a market is semi
DDrrEict F Flag qLIEStiCI'I
T Maer out of 2
The primary objective of fundamental analysis is to identify
Select one:
Q“; a. Mia-priced shares sf Your answer is correct!
"f b. WE” run ﬁrms
' c. poorly run ﬁrms
' d. high PIE shares
Your answer is correct.
T
Which of the following is an example of a way in which you could gain information that is part of the infonnation set
related to strong—form efﬁciency?
Select one:
' 3. Attending a company's Annual General Meeting.
' b. Downloading share prioe data from t
Doneot 'F Flag quest-
l[Tlijestion
3 Mark 21] out of 10D
XYZ Ltd ourrently pays a dividend of $0.86. One share in XYZ Ltd eminently ooste 314.511]. Given the ooet of equity capital
of 9%, what is the implied oonetent growth a‘ete?
Select one:
' a. {1.01
' LIES Ion wuml r Flag uunauur
2 MarkZoutofE
The type of efﬁ ciency form when the prices fullyr reﬂect the information contained in past price movements is called:
Select me:
' a. strong form
(E) b. weak form J Your answer is correct!
' c. none of the abo
Dcrrect 'F Flag 11
Question
4 Mark 2.00 out of 100
An investor estimates that a companv has a maintainahle constant level of EPS of 31.213. The investor also estimates the
cost of equity capital to be 14%. New projects adopted for the next three ‘years
[boast 'E’ Flag 1]
lQuestion
2 MarkZﬂO out of EDD
Davenport lCorporation‘s last dividend was $2312] and the directors expect to maintain the historic 3 percent annual rate
of growth. You plan to purchase the stock today he-use you feel that the growth r
correct 'F Flag question-
Question
4 Markimtofﬂ
Arbitrage opportunity means you can earn a positive return with
Select one:
{El 3. zero initial investment and zero risk. q!“ Your answer is correct!
" b. positive initial investment and iow risk.
' c. pos
Don'sct 17 Flag question
6 Mark 2 out of 2
In a two stock portfolio, if the correlation coefﬁcient between two stocks were to decrease over time. everything else
remaining constantr the portiolio‘s risk would
Select one:
' a. Increase
(3) b. Decrease q" Y
Question mm
‘3' Flag question
1 D MarkZ crLItofi
A portfolio is composed of two shares. A and B. Share A has a standard deviation of return of 24% while share B has a
standard deviation of return of 18%. Share A com pn‘aee 50% of the portfolio while aha r
ECO2MEC
Managerial Economics
Tutorial 3 Week 5
Price discrimination
Prepare your answers before coming to the tutorial.
Prepare your answers for Q2 on a separate sheet of paper for submission at the tutorial.
Your submission will be assessed and count 10%
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Tutorial 8 Week 11
Horizontal and vertical integration
Prepare your answers before coming to the tutorial.
1. There are two products, A and B. Their demand equations and cost functions are stated below:
QA = 100 4PA 2PB
QB = 1
Tutorial 6
During the tutorial, step-by-step derivations are shown and diagrams are drawn.
a. (Refer to the lecture notes and the textbook.)
b. (Refer to the lecture notes and the textbook.)
c. 425 meters from the west end
d. $21.75
e. $8.25
f. 10 extra h
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Managerial Economics
Tutorial 5 Week 7
Duopoly
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Prepare your answers for Q2 on a separate sheet of paper for submission at
the tutorial.
Your submission will be assessed and count 10% towards your
ECO2MEC
Managerial Economics
Tutorial 2 Week 4
Monopoly and perfect competition
Prepare your answers before coming to the tutorial.
1. A monopolist firm faces the demand for its product qD = 180 4p where p is the unit
price of the product. The firms cost
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Managerial Economics
Tutorial 4 Week 6
Basic game theory
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1. A and B are playing a simultaneous-move game. A can choose either High or Low and B can
choose either Near or Far. If A chooses High an
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Managerial Economics
Tutorial 1 Week 3
Basic economic concepts
Prepare your answers before coming to the tutorial.
1. The cost function of a firm is given by c(q) = (2/3)q3 8q2 + 48q + 20 where q is the
firms output, and the revenue function is gi
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Managerial Economics
Tutorial 6 Week 8
Product differentiation
Prepare your answers before coming to the tutorial.
Consider a small town in the middle of nowhere. There is only one street in the town,
one kilometer long running straight from east
Tutorial 8
During the tutorial, step-by-step derivations are shown.
1a.
PA = 231/23 = approx. 10.04
A = approx. 297.07
1b.
PA = 8, PB = 11, = 854
PB = 272/23 = approx. 11.826
B = approx. 529.38
1c.
The prices of both products are lower when produced by on