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Posted: November 9th, 2022
BFA607 – Investment Planning
Pages: 3
Questions: 4 Student ID No..…………………………………….
Student Full name: …………………………………
UNIVERSITY OF TASMANIA
TASMANIAN SCHOOL OF ECONOMIC AND BUSINESS
Mid Semester Test
BFA607 – Investment Planning
Instructions:
• Write your student number clearly at the top of your test answer.
• This test paper is worth 30% of your total semester assessment and will be marked out of 40.
• Answer ALL four (4) questions.
• Show all supporting calculations. Marks will be deducted if supporting calculations are not shown.
• It is essential that you follow the University’s academic integrity values. The consequences of plagiarism, collusion, exam cheating, contract cheating, fraud, misrepresentation and other breaches of academic integrity can be severe.
• Students engaging in any form of academic misconduct may be dealt with under the Ordinance of Student Discipline, and this can include imposition of penalties that range from a deduction/cancellation of marks to exclusion from a unit or the University. Details of penalties that can be imposed are available in the Student Academic Integrity Ordinance.
• Your answers must be typed in the test paper (a scanned copy of handwritten work will not be accepted). You must submit your answers to the “Mid-semester test” Dropbox under “Assessments / Assignments” on MyLO before 2:00 pm on Saturday, 27 August.
Question 1 [10 marks]
a) You are considering the purchase of AMDEX Company shares. You anticipate that the company will pay dividends of $2.00 per share next year and $2.25 per share the following year. You believe that you can sell shares for $17.50 each two years from now ex-dividend. If your required rate of return is 12 percent, what is the maximum price that you would pay for a share?
[6 marks]
b) Describe and contrast the following ordinary share dividend valuation models: (i) zero growth, (ii) constant growth and (iii) mixed growth.
[4 marks]
Question 2 [9 marks]
a) You have included the following securities in your portfolio:
Security Investment Return Beta
A $4,000 6.2% 0.95
B $7,500 4.8% 1.48
C $8,200 7.1% 1.11
D $5,300 5.9% 0.68
Required:
i. Calculate the expected returns of the portfolio.
ii. Calculate the beta of the portfolio.
[6 marks]
b) Explain the concept of diversification and its benefits.
[3 marks]
Question 3 [9 marks]
You are considering acquiring shares in Tomato Tours Ltd. You have observed the following returns on this share over the last four years:
Year 1 2 3 4
Return – 8% 3% 16% 5%
Required
What is the average return and standard deviation of the return on Tomato Tours shares?
Question 4 [12 marks]
Please review the enclosed IPO for Clarity Pharmaceuticals Ltd –
Required (750 words)
Discuss the following points.
• What do they do?
• History?
• Management quality and track record?
• Offer details?
• Future earnings valuation?
• Risks?
• Intellectual property?
• How did they perform post listing?
• Are they worth investing in?
• Summary
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