An investor who is in the 28 % tax bracket is considering choosing between an investment earning a 6 % taxable return and an investment earning a 4 % tax-free yield. Advise the investor which investment he should choose and give reasons. (5 marks) (b) If you buy 100 common shares of ZANACO Plc, to what are you entitled? (5 marks) (c) What is the most money you could make over the next year? (2 marks) (d) If you pay K95 per share, what is the most money you could lose over the year? (3 marks) (e) Stock Initial Price Final Price Shares (millions) ABC K25 K30 20 XYZ K100 K90 1 (1) Determine the portfolio initial and final value and the percentage change in portfolio value (3 marks) (2) Calculate the initial and final price-weighted index and the percentage change in the index. (3 marks) (3) Explain the weaknesses of the measure above (4 marks) (4) Calculate the market-value weighted index and the percentage change in the index. Compare that to the return of a portfolio that holds K500 of ABC stock for every K100 of XYZ stock(an index portfolio) (4 marks) (5) Calculate the profit or loss per share of stock to an investor who buys a call option on a stock whose price is K90 but a call option exercise price if K100 if the stock price at expiration is K105. (4 marks) Calculate the profit or loss for a purchaser of a put option with the same exercise price and expiration? (4 marks) (f) Suppose XYZ were to do a share split of two to one and the share price falls to K50. (1) Calculate the new divisor that would leave the index unchanged. Explain why this is done. (5 marks) (2) What is a share split, and why is this done? Discuss (3) Suppose XYZ’s final price increases to K110, while ABC price, calculate the percentage change in the price weighted index of the two stocks. Compare that to the percentage return of a portfolio that holds one share in each company (4) Assume that it is held to maturity and the company does not default on it. (5 marks)