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Question 2Munxay Company is comprised of only four major investment projects, details of which are as follows:Project % of company market value Annual % return during the last 5 years Risk% standard deviation Correlation with the market1 28 10 15 0.552 17 18 20 0.753 31 15 14 0.844 24 13 18... 顯示更多 Question 2 Munxay Company is comprised of only four major investment projects, details of which are as follows: Project % of company market value Annual % return during the last 5 years Risk % standard deviation Correlation with the market 1 28 10 15 0.55 2 17 18 20 0.75 3 31 15 14 0.84 4 24 13 18 0.62 The risk free rate is expected to be 5% per year, the market return 14% per year, and the standard deviation of market returns 13%. Required: a. Estimate the overall company beta for Munxay. b. Assume that Munxay’s shares are currently priced based upon the assumption that the last five year’s experience of returns will continue for the foreseeable future. Evaluate whether or not the share price of Munxay is undervalued or overvalued based on CAPM. c. Discuss why your results in part (b) might not correctly identify whether or not the share price of Munxay is undervalued or overvalued based on CAPM Question 3 BNG Company has a number of long-term fixed interest financial investments. The company treasury team has received data on two bonds and is considering whether or not to replace an investment in the bonds of Magnacorp with either bonds of Suprafirm of Grandit. Details of the bonds are presented below: Magnacorp Suprafirm Grandit Annual coupon 8.125% 6.5% 7.8% Years of maturity 10 year maturity 10 year maturity 4 year maturity Credit rating A- BBB+ A- Market price 107.8 93.1 105.83 Yield to maturity 7.0% 7.5% 6.0% Redemption price 100 100 100 Required: a. Prepare reasoned advice to BNG Company as to whether or not the bonds of Magnacorp should be replaced. b. Evaluate whether or not the market price of Grandit’s bonds in the above table is what would be expected from the company’s other data. c. Discuss whether your advice in part (a) would change if BNG’s treasury team expects interest rates to fall, with medium-term interest rates expected to fall by more than long-term interest rates.
最佳解答:
a. Estimate the overall company beta for Munxay. STD market = 13% Beta of security = [Correlation * STD of Security)] / STDm Beta of 1 = [Correlation * STD of Security)] / STDm = 0.55*15/13 = 0.63 Beta of 2 = 1.15 Beta of 3 = 0.90 Beta of 4 = 0.86 Overall beta = Weighted avg of beta of 1, 2, 3 &4 = 28% x .63 + 17% x 1.15 + ... = 0.86 2010-01-19 16:26:14 補充： b. Avg return of company = Weighted avg of return of 1, 2, 3 &4 = 28% x .10 + 17% x .18 + ... = 13.63 Required rate of return = Rf + beta (Rm - Rf) = 5 + 0.86 ( 14 - 5) = 12.74 Avg rate of return of company > required rate of return 2010-01-19 16:35:17 補充： Based on SML undervalued 2010-01-19 16:37:04 補充： c. I think you means the limitation of CAPM model. 2010-01-19 17:07:45 補充： Ans to Que 3 link http://hk.knowledge.yahoo.com/question/article?qid=6910011900894&mode=w
其他解答:
Can somebody help me to answer
發問:
Question 2Munxay Company is comprised of only four major investment projects, details of which are as follows:Project % of company market value Annual % return during the last 5 years Risk% standard deviation Correlation with the market1 28 10 15 0.552 17 18 20 0.753 31 15 14 0.844 24 13 18... 顯示更多 Question 2 Munxay Company is comprised of only four major investment projects, details of which are as follows: Project % of company market value Annual % return during the last 5 years Risk % standard deviation Correlation with the market 1 28 10 15 0.55 2 17 18 20 0.75 3 31 15 14 0.84 4 24 13 18 0.62 The risk free rate is expected to be 5% per year, the market return 14% per year, and the standard deviation of market returns 13%. Required: a. Estimate the overall company beta for Munxay. b. Assume that Munxay’s shares are currently priced based upon the assumption that the last five year’s experience of returns will continue for the foreseeable future. Evaluate whether or not the share price of Munxay is undervalued or overvalued based on CAPM. c. Discuss why your results in part (b) might not correctly identify whether or not the share price of Munxay is undervalued or overvalued based on CAPM Question 3 BNG Company has a number of long-term fixed interest financial investments. The company treasury team has received data on two bonds and is considering whether or not to replace an investment in the bonds of Magnacorp with either bonds of Suprafirm of Grandit. Details of the bonds are presented below: Magnacorp Suprafirm Grandit Annual coupon 8.125% 6.5% 7.8% Years of maturity 10 year maturity 10 year maturity 4 year maturity Credit rating A- BBB+ A- Market price 107.8 93.1 105.83 Yield to maturity 7.0% 7.5% 6.0% Redemption price 100 100 100 Required: a. Prepare reasoned advice to BNG Company as to whether or not the bonds of Magnacorp should be replaced. b. Evaluate whether or not the market price of Grandit’s bonds in the above table is what would be expected from the company’s other data. c. Discuss whether your advice in part (a) would change if BNG’s treasury team expects interest rates to fall, with medium-term interest rates expected to fall by more than long-term interest rates.
最佳解答:
a. Estimate the overall company beta for Munxay. STD market = 13% Beta of security = [Correlation * STD of Security)] / STDm Beta of 1 = [Correlation * STD of Security)] / STDm = 0.55*15/13 = 0.63 Beta of 2 = 1.15 Beta of 3 = 0.90 Beta of 4 = 0.86 Overall beta = Weighted avg of beta of 1, 2, 3 &4 = 28% x .63 + 17% x 1.15 + ... = 0.86 2010-01-19 16:26:14 補充： b. Avg return of company = Weighted avg of return of 1, 2, 3 &4 = 28% x .10 + 17% x .18 + ... = 13.63 Required rate of return = Rf + beta (Rm - Rf) = 5 + 0.86 ( 14 - 5) = 12.74 Avg rate of return of company > required rate of return 2010-01-19 16:35:17 補充： Based on SML undervalued 2010-01-19 16:37:04 補充： c. I think you means the limitation of CAPM model. 2010-01-19 17:07:45 補充： Ans to Que 3 link http://hk.knowledge.yahoo.com/question/article?qid=6910011900894&mode=w
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