INV2601
Self-Assessment
Questions and
Suggested Solutions
, INV2601 SELF ASSESSMENT QUESTIONS
1. The annual holding period return of an investment that was held for four years is
5.74%. The ending value of this investment was R1 000. Calculate the beginning
value of the investment.
1. R799.94
2. R945.72
3. R1 057.40
4. R1 250.00
2. Which of the following is not a purpose of market indices?
1. To predict past market movements.
2. To create and monitor an index fund.
3. To measure market rates of return in economic studies.
4. As benchmarks to evaluate the performance of professional portfolio managers.
3. If a risk-free asset has a correlation of zero with all other risky assets the expected
return will be........... to/than the actual return.
1. lower
2. equal
3. greater
4. not related
4. .....(i)..... risk is the only risk that a share contributes to a well diversified portfolio
while .....(ii) ..... risk is diversified away from this portfolio.
(i) (ii)
1. Financial unsystematic
2. Systematic financial
3. Systematic unsystematic
4. Unsystematic systematic
1
, Use the information in the table below to answer question 5.
Average rate of Standard deviation Correlation coefficient
return with market index
Green 26% 14% 0.45
Limited
Market 10% 6%
Index
5. Calculate the beta of Green Limited.
1. 0.01
2. 0.06
3. 0.55
4. 1.06
6. Brainchild Limited has a current dividend of R2.00 per share. It has a beta of 1.1 and
a constant growth rate of 5%. The risk-free rate is 8% and the return of the market is
12%. Calculate the intrinsic value of Brainchild Limited using the constant growth
model.
1. R27.03
2. R28.38
3. R28.57
4. R30.00
2
, 7. Maroon Limited has just paid dividends of R1.00 per share this year. The dividend is
expected to grow at 15% over the next two years and at 8% in year three. There
after growth is expected to level off to a constant growth of 4%. Maroon Limited has
a required rate of return of 18%. Calculate the intrinsic value of Maroon Limited
using the three stage dividend discount model.
1. R6.46
2. R9.25
3. R9.37
4. R10.61
Use the information in the table below to answer question 8.
Fashion Corporation
Dividend payout ratio 30%
Net profit margin 15%
Total asset turnover 2.0
Financial leverage 0.9
8. Calculate the growth rate of Fashion Corporation.
1. 8.10%
2. 15.00%
3. 18.90%
4. 27.00%
9. A .....(i)..... shares are shares with low betas, regardless of the nature of the
company while .....(ii). .... companies are firms whose business involves great risk.
(i) (ii)
1. cyclical defensive
2. cyclical speculative
3. defensive cyclical
4. defensive speculative
3
Self-Assessment
Questions and
Suggested Solutions
, INV2601 SELF ASSESSMENT QUESTIONS
1. The annual holding period return of an investment that was held for four years is
5.74%. The ending value of this investment was R1 000. Calculate the beginning
value of the investment.
1. R799.94
2. R945.72
3. R1 057.40
4. R1 250.00
2. Which of the following is not a purpose of market indices?
1. To predict past market movements.
2. To create and monitor an index fund.
3. To measure market rates of return in economic studies.
4. As benchmarks to evaluate the performance of professional portfolio managers.
3. If a risk-free asset has a correlation of zero with all other risky assets the expected
return will be........... to/than the actual return.
1. lower
2. equal
3. greater
4. not related
4. .....(i)..... risk is the only risk that a share contributes to a well diversified portfolio
while .....(ii) ..... risk is diversified away from this portfolio.
(i) (ii)
1. Financial unsystematic
2. Systematic financial
3. Systematic unsystematic
4. Unsystematic systematic
1
, Use the information in the table below to answer question 5.
Average rate of Standard deviation Correlation coefficient
return with market index
Green 26% 14% 0.45
Limited
Market 10% 6%
Index
5. Calculate the beta of Green Limited.
1. 0.01
2. 0.06
3. 0.55
4. 1.06
6. Brainchild Limited has a current dividend of R2.00 per share. It has a beta of 1.1 and
a constant growth rate of 5%. The risk-free rate is 8% and the return of the market is
12%. Calculate the intrinsic value of Brainchild Limited using the constant growth
model.
1. R27.03
2. R28.38
3. R28.57
4. R30.00
2
, 7. Maroon Limited has just paid dividends of R1.00 per share this year. The dividend is
expected to grow at 15% over the next two years and at 8% in year three. There
after growth is expected to level off to a constant growth of 4%. Maroon Limited has
a required rate of return of 18%. Calculate the intrinsic value of Maroon Limited
using the three stage dividend discount model.
1. R6.46
2. R9.25
3. R9.37
4. R10.61
Use the information in the table below to answer question 8.
Fashion Corporation
Dividend payout ratio 30%
Net profit margin 15%
Total asset turnover 2.0
Financial leverage 0.9
8. Calculate the growth rate of Fashion Corporation.
1. 8.10%
2. 15.00%
3. 18.90%
4. 27.00%
9. A .....(i)..... shares are shares with low betas, regardless of the nature of the
company while .....(ii). .... companies are firms whose business involves great risk.
(i) (ii)
1. cyclical defensive
2. cyclical speculative
3. defensive cyclical
4. defensive speculative
3
