. Question 4: Share and share markets (15 Marks) Please clearly label a blank piece of paper with Question number 4 and write your response to this question on the paper. You will have time at the end of the exam to upload a photograph of your answer. Show all your workings when calculations are required and round off your FINAL result to TWO decimal places. Bubs Australia is a public listed company in ASX. It is considering issuing ordinary shares to raise capital. a) Bubs Australia has a Beta of 1.2. The long-term return of the ASX200 (i.e. the market portfolio) is 8% per annum, and the market risk premium is 5%. . Without calculation, use the meaning of Beta to explain if Bubs Australia's expected rate of return would be higher or lower than the market portfolio return? [2 marks] . Using CAPM, calculate the expected rate of return of Bubs Australia. [3 marks] 4 of 15 b) If the company is expected to pay a dividend of $0.2/share at the end of year 3 and dividends will grow at a constant rate of 2% per annum forever, what is the implied value of a Bubs Australia share today? [6 marks] c) If Bubs Australia intends to sell the shares at $3/share, would you purchase them? Briefly explain why? [1 mark] d) Bubs Australia is also considering issuing some preference shares. Would the preference shareholders expect a higher or lower return than the ordinary shareholders? Briefly explain why. [3 marks] This question must be answered on paper. No. of answer sheets: 23of15 Ill-El MW (15 Marks) Please clearly label a blank piece of paper with Question number a and write your response to this question an the paper. You will have time at the end of the exam to upload a photograph of your answer Show all your workings when calculations are required and round off your FINAL result to TWO decimal places. Aurand Ltd wants to raise $1,500.000 to fund the expansion of its business. To do this. it will issue bonds with 10 years to maturity. a face value of $1,000 and a quarterly coupon payment of $20. The current yield to maturity of similar bonds in the market is B96 per annum. a) How many bonds should Aurand Ltd issue to raise a total of $1,500,000? Use bond pricing theory to explain why briey. [2 marks] h) Assume investor Mike purchased a bond at Issuance and sold it at a market yield of 9% p.a. one year later, right after the coupon payment. Calculate the selling price of the bond. [3.5 marks] 0) Draw a timeline and set out each cash ow that Mike paid and received from his investment in the bond for one year Q calculate the holding period yield per annum he earned on this investment. l3.5+4=7.5 marks] d) Was Mike's holding period yield higher or lower than the yield to maturity he would earn If he kept the bond tlll maturity? Briey explain why. [2 marks] E This question must be answered on paper. I No. of answersheets: 1