Consider the following information: Stamp Duty 10,000 Sale price of a property 240,000 Purchase price of...

   

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Consider the following information: Stamp Duty 10,000 Sale price of a property 240,000 Purchase price of a property 70,000 Sale costs 24,000 Property development costs 30,000 Legal Fees 15,000 Individual allowance 20,000 Ignoring any indexation, calculate the capital gains tax at a rate of 20%. [6 marks] Question 6. a) Assume that the risk-free rate is 6% and the expected return on the market portfolio is 24%. Using the Capital Asset Pricing Model (CAPM) answer the following questions: i. What is the risk premium on the market portfolio? [2 marks] ii. What is the expected return on an asset with a beta of 2? [3 marks] iii. If an investment project with a beta of 0.5 offers an expected return of 8%, should you do the project? Briefly explain why or why not. [3 marks] b) The stock of XYZ Corporation is trading at 40. Last year XYZ paid dividends of 0.50 per share. An analyst estimates that dividends will grow by 4% per year in the future. i. If the cost of capital is 6%, calculate the fair price of XYZ Corporation. ii. Is XYZ Corporation undervalued? [2 marks] [2 marks] Consider the following information: Stamp Duty 10,000 Sale price of a property 240,000 Purchase price of a property 70,000 Sale costs 24,000 Property development costs 30,000 Legal Fees 15,000 Individual allowance 20,000 Ignoring any indexation, calculate the capital gains tax at a rate of 20%. [6 marks] Question 6. a) Assume that the risk-free rate is 6% and the expected return on the market portfolio is 24%. Using the Capital Asset Pricing Model (CAPM) answer the following questions: i. What is the risk premium on the market portfolio? [2 marks] ii. What is the expected return on an asset with a beta of 2? [3 marks] iii. If an investment project with a beta of 0.5 offers an expected return of 8%, should you do the project? Briefly explain why or why not. [3 marks] b) The stock of XYZ Corporation is trading at 40. Last year XYZ paid dividends of 0.50 per share. An analyst estimates that dividends will grow by 4% per year in the future. i. If the cost of capital is 6%, calculate the fair price of XYZ Corporation. ii. Is XYZ Corporation undervalued? [2 marks] [2 marks]