QUESTION 3

a) Briefly explain the systematic and unsystematic risk.

b) The following table shows that the S&P 500 stock index and Merck using ten years data.

Year	S&P 500	Merck
2011	10.7	-29.0
2012	28.2	-11.2
2013	-21.6	-1.2
2014	-12.1	-36.0
2015	-9.8	41.8
2016	20.4	-7.5
2017	28.7	41.3
2018	33.5	35.6
2019	21.8	24.0
2020	38.0	76.5

1. Calculate the arithmetic average return for S&P and Merck.
2. Compute the variance for S&P and Merck.
3. Describe beta in investment.
4. ListTHREE (3) type of risk.

QUESTION 4

Carlos Holdings Berhad is a property developer company in Malaysia, due to high demand of property, the company has decided to build up a new township which located at Bangi. The project's estimated cost is RM750 million and they were planning to finance using debt which by issuing bond. The bond has a par value RM1,000 with 10 percent coupon rate and will mature in 10 years. Dr. Danial is a retail investor and he has decided to buy the bond.

1. Calculate the value of bond (Vb) if the required rate of return is 8 percent.
2. Determine the new value of bond (Vb) if the market rate has increased to 12 percent.
3. Define Yield to Maturity (YTM) in bond investment.
4. Explain THREE (3) characteristics of bon
5. Describe THREE (3) characteristics of shares

-END OF QUESTIONS-

FORMULA

FV = PV x {1+ r} n

D1= D0[1+g]

Vcs = D1 + D2 + D3 + D4 + D5 + ...

(1+r)1 (1+r)2 (1+r)3 (1+r)4 (1+r)5

Vb = C x {1 - (1/(1+r)t) + PV/ (1+r)t

r

NPV = FCF + FCF + FCF + FCF - Initial Outlay

(1+ r)1 (1+ r)2 (1+ r)3 (1+ r)4

Profitability index = Present value total cash inflows

Present value total cash outflows or Initial Outlay

Payback period = A + {B/C}

Rate of return = Rf + Beta[ Rm - Rf]

DFL = EBIT

EBIT - I - {PD x 1 }

1 - T

DOL = Fixed Cost

Price - Variable cost

YTM = C + {FV-PV/n}

{FV+PV/2}

FATO = Net Sales

Total Fixed Assets

TATO = Net Sales

Total Assets