Exam (elaborations)
INV4801 EXAM PACK 2023
- Course
- Institution
QUESTIONS AND ANSWERS
[Show more]
Seller
Follow
jpapaya
Reviews received
Content preview
INV4801EXAM PACK
2023
QUESTIONS AND
ANSWERS
Email: musyokah11@gmail.com
, Investment Portfolio Management
January/February 2018
INV4801
Question 1
a)
WACC excluding the Pension Plan’s assets and liabilities
Equity = Assets – liabilities = 1.0 – 0.6 = 0.4
Weight for equity = 0.4/ (0.4 + 0.6) = 0.4
Weight for debt = 0.6/ (0.4 + 0.6) = 0.6
Beta = (0.4 x 1.9) + (0.6 x 0.0) = 0.76
WACC = 7 + 0.76(4) = 10.04%
b)
WACC including Pension Plan’s assets and liabilities
Weight of equity = 0.55
Weight of debt = 1 – 0.55 = 0.45
Beta TA = [0.4/(1.0 + 0.7) X 1.9] + [1.3/1.7 X 0.0] = 1.156
Beta TA = [1.0/1.7 x 1.4] + [0.7/1.7 x Beta]
1.156 = 0.8235 + 0.4118Beta
0.3325 = 0.4118Beta
,0.8074 = Beta
WACC = 7 + 0.8074(4) = 10.23%
c) Implications of not including the Pension Plan’s assets and liabilities in
Rusere Investments’ capital decision-making process
• Pension plan assets fund the payment pension liabilities
• Pension plan’s investment performance is judged relative to the adequacy of
its assets with respect to funding of pension liabilities
• Without the inclusion of Pension plan assets and liabilities makes it impossible
for setting an investment policy
• Without the inclusion of the pension plan assets and liabilities makes it difficult
to determine pension surplus or underfunded plan
d) Country Apple
Beta = Correlation x (standard deviation of apple/ standard deviation of market)
= 0.79 x (0.11/0.10)
= 0.869
RP (fully integrated) = Standard deviation x correlation x Sharpe ratio
= 11% x 0.79 x 0.26
= 2.26
RP (fully segmented) = standard deviation x Sharpe ratio
= 11% x 0.26
= 2.86
RP = (2.26 x 0.85) + (2.86 x 0.15)
= 2.35
, Expected returns = Rf + RP
= 3.5 + 2.35
= 5.85
Country Borrowdale
Beta = Correlation x (standard deviation of apple/ standard deviation of market)
= 0.58 x (0.21/0.10)
= 1.218
RP (fully integrated) = Standard deviation x correlation x Sharpe ratio
= 21% x 0.58 x 0.26
= 3.17%
RP (fully segmented) = standard deviation x Sharpe ratio
= 21% x 0.26
= 5.46%
RP = (3.17 x 0.65) + (5.46 x 0.35)
= 3.97%
Expected returns = Rf + RP
= 3.5 + 3.97
= 7.47%
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller jpapaya. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.42. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
57413 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now