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A) ABC ltd has a beta of 1.2.Calculate the required rate of return of an investment if the average market return is 26% and the risk free rate is 14%
B) The risk free rate of return of XYX Ltd is 60%. And the market rate of return is 11%. The standard deviation of returns for the market as a whole is 40%. The covariance of returns for the market with returns for the share of ABC Ltd is 19.2%
Calculate :
(I) the beta value and
(ii) the cost of capitalPlease do not ask the same question in two different forums. Also, in future please do not simply type out test questions and expect to receive a full answer. You must have an answer in the same book in which you found the question – so ask about whatever it is in the answer that you are not clear about and then I will explain.
For question A:
This is basic application of the formula that you are given on the formula sheet.
The required return = 14 + 1.2 (26 – 14) = 28.4%
This is all explained in great detail in my free lectures and I do suggest that you watch them. The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
Question B:
This is not examinable in Paper FM (it involves calculating the beta). It was examined in Paper AFM but a long, long time ago and is no longer asked in AFM.
I appreciate for the counsel, but the last question just found if in one of the past paper-corporate finance. Am doing Business Administration so I thought I could bring it on the forum to be helped on how to go about as the topic (question) is in line with Financial Management. However, I appreciate so much for the counsel
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