Corporate Finance Assignment

Answer - The Following Four Questions -

Question 1 - Calculate the return for each of these investments (capital gain/loss plus dividend).

a) My portfolio ends the year with a value of $12.72 million after paying dividends at the end of the year to the value of $255,000. The value of the fund at the beginning of the year was $12.13 million.

b) At the same time the All Ordinaries Index ended the year at 5695 after starting at 5226.

c) A share in BHP was selling for $23.45 at the beginning of the year and selling for $27.42 at the end of the year after paying a dividend of $1.13.

Question 2 - A perpetuity with the first annual cash flow paid at the beginning of year 4 is equivalent to receiving $100,000 in 15 years time. Assume that the perpetuity and the lump sum are of equivalent risk and that j2 = 11% pa is the appropriate interest rate. How much is the annual cash flow associated with the perpetuity? (Accurate to the nearest dollar)

Question 3 - Discus the implications of the empirical evidence on market efficiency for

(a) technical analysis

(b) fundamental analysis

Question 4 - The standard deviations of returns on assets A and B are 12 per cent and 6 per cent, respectively. A portfolio is constructed consisting of 30 per cent in Asset A and 70 per cent in Asset B. Calculate the portfolio standard deviation if the correlation of returns between the two assets is:

1. 1

2. 0.5

3. 0

4. -1

Comment on your answers.