# As an equities analyst researching KYMG Ltd, you are trying to determine whether the current share price is fairly priced

## Question:

As an equities analyst researching KYMG Ltd, you are trying to determine whether the current share price is fairly priced or not. You have obtained the following information:

- KYMG is expected to pay a constant annual dividend of $0.40 per share forever with the next dividend due in a year.
- The current share price is $4.65.
- The variance of KYMG's stock returns is 0.42, and its correlation with the market portfolio is +0.8.
- The current risk-free interest rate is 2% per year, the expected market return is 9% per year, and the variance of the market risk premium is 0.33.

Given this information, what can you conclude about the share price?

RegIncome Pty Ltd is a company that pays its shareholders a very regular and consistent dividend stream forever: an $0.09 dividend at the end of every month except December, and a large $1.00 dividend every December. What is the total equity value for RegIncome on 1st January 2021 given the following information:

- The cost of equity capital is a 10% effective annual rate.
- The total number of shares outstanding is 250,000.
- Assume the first dividend ($0.09) is in exactly 1 month from today, then 2 months, and so on. The next $1.00 annual dividend is in exactly 1 year from today.

Any intermediate steps should be rounded to **4 or more decimal places**. Provide your FINAL answer to the nearest dollar and exclude the dollar sign ($). For e.g., $10,784.6518 should be input as *10785*.

Two *uncorrelated *assets have the same expected return of 10% p.a. and the same standard deviation of 20% p.a.

What is the standard deviation of a portfolio that is equally weighted in these two assets?

Any intermediate steps should be rounded to **4 or more decimal places**. Provide your FINAL answer in DECIMAL form (not percentage form!) to the nearest 4th decimal place.

Due to her high tolerance for risk, Molly Neldrum invests the $1 million inheritance she has just received in a leveraged portfolio of the Developing Markets Index (which has a beta of 2) and the risk-free rate. The weight Molly has assigned to the Developing Markets Index is 200%. Given the expected market risk premium is 5% p.a. and the risk-free rate is 2% p.a., what is the expected value of Molly's inheritance in exactly 3 years time?

Any intermediate steps should be rounded to **4 or more decimal places**.

**Related Book For**

## Auditing a risk based approach to conducting a quality audit

ISBN: 978-1133939153

9th edition

Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg

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