Get premium membership and access revision papers, questions with answers as well as video lessons.
Hba2303:Financial Accounting Question Paper
Hba2303:Financial Accounting
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2014
QUESTION ONE 30 MARKS
(a) Explain the basic differences between portfolio theory according to Harry Markowitz and that of single index model. (4 marks) (b) The following are information about three projects X,Y and Z, market returns and inflation rates under three state of nature. State of nature probability returns (%)on inflation rate(%) X Y Z market Good 0.3 16 24 20 14 4 Fair 0.4 12 18 17 12 6 Poor 0.3 10 13 15 19 8 Suppose you want invest in any one of the above project, which one will you select assuming the return on short term government securities during the period were estimated to be 6%. Given = 0.4. (14 marks) (c) Of late, most corporation engage in strategic partnering so as to take competitive advantages: Using local example in Kenya, i. Discuss the benefits of such a practice (6 marks) ii. Explain methods used in determining the value of the target firm (6 marks)
2
QUESTION TWO 20 MARKS (a) Explain the difference between capital market line and security market line. (5 marks)
(b) The security analyst supplied you with the following information on the excess returns of the shares of money love ltd and the excess returns on NSE portfolio under three state of nature: State of nature probability excess returns on share excess returns on NSE 1 0.25 16% 12% 2 0.35 18 14 3 0.40 24 17 Required: i. The securities beta and interpret your result. (7 marks) ii. Non market risk of the security (8 marks)
QUESTION THREE 20MARKS (a) Explain the differences between technical and fundamental analysis. (4 marks)
(b) You are considering investing in the following three shares A, B, and C belonging to three different companies. You want to invest third of your endowments in A, a quarter of the remaining in B and the rest in C. The analyst supplied you with the recent data for four periods as follows: Period returns (%) on A B C 1 16 -4 2 2 12 8 6 3 8 14 10 4 6 17 13 Required: Calculate i. The returns of the portfolio (4 marks) ii. The portfolio risk (12 marks) QUESTION FOUR 20MARKS (a) Explain the defence available to target firm to prevent hostile takeover. (6 marks)
3
(b) Strong Ltd is planning to acquire Weak Ltd. The relevant financial details of the two firms prior to merger announcement are as follows: Strong Ltd Weak Ltd Market price per share Shs 75 Shs 30 Number of shares 1,000,000 500,000 Market value of the firm 75,000,000 15,000,000 The merger is expected to bring gains which have a present value of Ksh 15 million. Strong Ltd offers 250,000 shares to the shareholders for Weak Ltd. Determine: i. The total value of the combined firm after merger (3 marks) ii. Gains to the shareholders of strong Ltd (3 marks) iii. True cost of acquiring weak Ltd and net present value of the merger to Weak Ltd (3 marks) c) Explain reasons why firms carry out a scheme of reconstructions. (6 marks)
QUESTION FIVE 20MARKS (a) Explain difference between aggressive and defensive betas. (2 marks)
(b) The following are the annual returns on the securities X, Y, and Z and the Nairobi stock exchange index over past 10 years.
Year NSE Index X Y Z 1 0.8 1.0 -0.5 1.0 2 1.2 1.5 -1.0 1.0 3 1.9 1.7 2 1.0 4 -2.0 -1.0 3 2.0 5 1.8 3.0 0.5 2.0 6 0.9 1.0 0.5 2.0 7 0.3 0.5 1.0 2.1 8 0.5 1.0 1.0 2.2 9 -1.0 -0.5 4.0 -2.3 10 0.5 1.0 0.5 1.5 Required: i. Calculate the 10 year average returns and risk () each security and NSE. (6 marks) ii. Rank each securities on the basis of total risk, systematic risk and (9 marks) iii. Which security is most volatile and why. (3 marks)
More Question Papers
Popular Exams
Return to Question Papers