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 capital
Ask the Tutor ACCA FM
WACC
6y ago#1Please 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
6y ago#3You are welcome :-)
This topic is locked — no new replies.