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Hps2111:Quality Management Question Paper
Hps2111:Quality Management
Course:Bachelor Of Supplies Management
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE (30 MARKS)
a. An investor hold 5,000 ordinary shares in Akuru ltd, quoted company as at 2.1.11 Akuru ltd has been paying average dividends of sh. 2per shared per annum in recent years (15 % of the par value per share ) Additional information: i. The dividends are expected to grow at a rate of 15% per annum over the coming three years. ii. In the year ended 31.12.11 the market price per shared increased by 30% of the par value per share.
Required:
Determine the return on investment (5 Marks)
b. (i) Distinguish Cleary the difference between systematic frisk and the unsystematic risk is as used in portfolio theory of investments (3 Marks) (ii) Highlight five assumptions underlying the capital assets pricing model (CAPM) (5 Marks) c. (i) explain briefly the term present value of money as applied in investment (2 Marks) (ii) Nenda ltd bought a machine for sh. 4 million… the machine has an economic useful fife I the company of 2 years and in expected to yield sh. 2,420,000 a year. Of the prevailing interest rates in 10$, is the investments viable (3 Marks) (iii) Besides interest rates, highlight other factors that affect levels of investments in an enterprise (6 Marks)
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(iv) Outline the major causes of investments or projects failure in the public sector
(6 Marks)
QUESTION TWO (20 MARKS)
Explain the following derivatives as used I investment management:
a. Futures contracts (5 Marks) b. Forward contracts (5 Marks) c. Options (5 Marks) d. Swaps (5 Marks)
QUESTION THREE (20 MARKS)
The return on Mema ltd ordinary shares has been found to be influenced by three risk factors x1, x2, x3.These factors are explained below:
X1- an index reflecting energy
X2- changes in the level of stock market prices
X3- changes in the rate of the local currency relative to other currencies associated with each factor are shown below
Risk factors risk premium beta
X1 4.5% 0.7
X2 7.5% 0.3
X3 11.25% 1.1
The risk frère rate is 8.25%
Required:
i. Arbitrage pricing model (6 Marks) ii. Capital asset pricing model (8 Marks) iii. Highlight with explanations the l imitations of capital asset pricing model (4 Marks) iv. What is the risk free rate (2 Marks)
QUESTION FOUR (20 MARKS)
a. You are presented with the following different views of stock behaviour i. If the company publishes earnings figures that are better than the market will usually experience an abnormally high return both on the day of the earnings announcement and over r two or three days following the announcement.
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ii. The return on professionally managed equities portfolios is likely to be no better than that which could be achieved by a naive investor who holds the market portfolio. iii. Share prices usually seem to anew financial year, however this can be explained by the fact that many investors sell Lessing stocks just before the fiscal year end in order to establish a tax loans for capital gain tax purposes. This causes abnormal downward pressure which is released when the new financial year begins.
REQUIRED:
a. (i)Define an efficient market as used n investments management (2 Marks) (ii) Describe the three factors of the efficient market hypothesis (12 Marks) b. Highlight and explain what each of the above three statements tells you about the efficiency of the stock market and where appropriate relate your comments to over or more forms of the efficient market hypothesis (6 Marks)
QUESTION FIVE (20 MARKS)
The following data have been extracted from the performances of Uwezo company ltd
Year market returns company returns
2011 0.27 0.25
2010 0.12 0.05
2009 -0.03 -0.05
2008 0.12 0.15
2007 -0.03 -0.10
2006 0.27 0.30
The yield to maturity on treasury bills is 0.66 and is expected to remain at this point for the foreseeable future.
Required:
a. Equation of the security market hire (9 Marks) b. Required return for the uwezo ltd (3 Marks) c. Excluding foreign exchange risk discuss briefly how risks of investments can be managed (8 Marks)
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