question archive FIN303 Financial Management Question 1 SBD Bank BOU Bank Premier Home Loan Easy Home Loan Loan Quantum Up to 70% of valuation Up to 80% of valuation Tenor of loan 65 minus borrower’s age 70 minus borrower’s age Interest rate Monthly rest Monthly rest Owner occupation Rental purpose 2
Subject:FinancePrice:19.01 Bought9
FIN303
Financial Management
Question 1
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SBD Bank |
BOU Bank |
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Premier Home Loan |
Easy Home Loan |
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Loan Quantum |
Up to 70% of valuation |
Up to 80% of valuation |
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Tenor of loan |
65 minus borrower’s age |
70 minus borrower’s age |
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Interest rate |
Monthly rest |
Monthly rest |
Owner occupation Rental purpose |
2.0% p.a. 2.5% p.a. |
1.5% p.a. 1.8% p.a. |
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|
|
Early redemption penalty |
Yes, if redeemed within 1 year |
Yes, if redeemed within 3 years |
Analyse the following:
Fill in the table below.
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SBD Bank |
BOU Bank |
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$ |
$ |
Prime property |
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Down-payment |
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Monthly instalment |
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Non-prime property |
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Down-payment |
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Monthly instalment |
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(8 marks)
Based on this new criterion, compute the TDSR based on Mr Tan’s options and determine which property and bank loan can he take up?
(10 marks)
(12 marks)
Question 2
A firm has just announced Earnings per share (EPS) of $10 on 1 Apr 20XX. Like before, it is expected to pay 20% as dividends to its shareholders but only for the coming five years when earnings are expected to be flat. Thereafter, dividends are set to grow by 10% annually for the subsequent 5 years when overseas production kicks in. Dividends are to set to remain static as overseas markets mature from that point. Cost of capital is 15%.
(c) If the 10-year Treasury bond yields return of 4%, the market portfolio yields return of 5% and the firm’s stock beta is 1.2, calculate the return of the firm’s stock.
(2 marks)
What is a good measure of this relevant risk? Discuss with the aid of a graph and the relevant axes a theory you have learned in class.
(4 marks)
(2 marks)
Question 3
John is putting some of his savings into bonds. As John’s advisor, you have identified the following bonds for John to consider:
Bond |
Price |
Coupon |
Coupon frequency |
Maturity |
A |
99 |
4.5% |
Quarterly |
10 years |
B |
102 |
5.0% |
Monthly |
5 years |
C |
91 |
4.0% |
Semi-annual |
20 years |
(9 marks)
(6 marks) Question 4
Asset |
Minimum Initial Outlay |
Income |
Number of years, n |
Terminal cash-out, nth year |
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|
|
|
|
T-Bond |
$10,000 |
$200 half yearly |
10 |
$10,000 |
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Stock |
$1,000 |
$10 yearly |
10 |
$950 |
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Unit Trust |
$100 |
$5 quarterly |
10 |
$110 |
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Property |
$1.5 mil. |
$3,200 monthly |
10 |
$1.8 mil. |
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Gold |
$1,200 |
0 |
10 |
$2,100 |
(a) Solve the rate of return for each of the investment assets. Fill in the table below.
Assets |
Annualised Rate of Return % |
T-Bond |
|
Stock |
|
Unit Trust |
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Property |
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Gold |
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(10 marks)
(b) Based on the scenarios below, recommend an investment asset for a novice investor and give one (1) reason respectively.
Scenario |
Asset |
Reason |
Central bank reduces interest rate. Investor relies on credit to invest short-term. |
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Investor loses confidence in the markets generally |
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Authority lifts punitive stamp duty on property investments |
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Investor prefers regular income and principal protected |
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A new graduate just started his first job |
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(20 marks)
(c) Describe one (1) important disclaimer that you must highlight to prospective investors before you give them financial advice?
(4 marks)
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