FIN2601 Assignment 1 (DETAILED ANSWERS) Semester 1 2026 - DISTINCTION GUARANTEED

FIN2601 Assignment 1 (DETAILED ANSWERS) Semester 1 2026 - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED - DISTINCTION GUARANTEED Answers, guidelines, workings and references.. Question 1 [18 marks] Read the information provided and then answer the questions that follow. Indicate all the steps in your calculations – it is NOT enough to provide only a final answer. Transportation Hero is a diversified logistics and transportation holding company that operates through several subsidiaries offering services across the logistics value chain. The group has invested a total capital amount of R500 million across five subsidiaries. Each subsidiary operates in a different segment of the logistics industry and is exposed to varying levels of systematic risk due to differences in operational activities, demand sensitivity and competitive conditions. The level of systematic risk for each subsidiary is measured using beta coefficients. The investment amounts and beta values of the subsidiaries are presented as follows: Subsidiary Investment (R million) Beta Freight and cargo services 160 0,5 Warehousing and distribution 120 2,0 Courier and last-mile delivery services 80 4,0 Fleet management and vehicle leasing 80 1,0 Customs clearing and freight forwarding 60 3,0 The risk-free rate of return is 8%. The expected market return for the next period is uncertain and is described by the following probability distribution: Probability Market return 0,1 10% 0,2 12% Downloaded by Polar magnats () lOMoARcPSD| FIN2601/101/3/2026 7 0,4 13% 0,2 16% 0,1 17% Use the information above to answer the following questions: 1.1 Calculate the expected return of the market portfolio using the probability distribution provided. (6 marks) 1.2 Determine the beta coefficient of the portfolio and explain what this beta implies about the systematic risk of the group relative to the market. (10 marks) 1.3 Calculate the required rate of return for the overall investment portfolio. (2 marks) Question 2 [8 marks] Read the information provided and then answer the questions that follow. Indicate all the steps in your calculations – it is NOT enough to provide only a final answer. Outbout Operations issued a six-year bond with a par value of R1 000 one year ago. The bond pays interest of R40 every six months. When the bond was issued, it sold for R889, reflecting prevailing market interest rates at that time. Market interest rates remained stable for the past year but declined significantly a few days ago. As a result, the current market price of the bond is R1 042. Investors and management are interested in understanding how the changes in market interest rates affect the bond’s yield, returns and valuation. Use the information above to answer the following questions: 2.1 Calculate the yield to maturity (YTM) of the bond one year ago at the time it was purchased. (2 marks) 2.2 Calculate the bond’s yield to maturity today based on the current price of R1 042. (2 marks) 2.3 Explain why the bond was issued at a discount one year ago. (4 marks) Downloaded by Polar magnats () lOMoARcPSD| 8 Question 3 [4 marks] Read the case study below and answer the question that follows. Agency problems in a growing e-commerce business: The Glam Goddess case In 2015, Zaire and Aiyanna founded Glam Goddess and initially managed the business themselves, resulting in minimal agency problems. As the business pivoted to an e-commerce model and expanded rapidly after 2018, the founders hired professional managers to run daily operations. This created a separation between ownership and control. As Glam Goddess continued to grow, the managers gained more access to operational information than the owners, increasing the risk of agency problems such as conflicts of interest and information asymmetry. Using the Glam Goddess case, briefly explain how agency problems may arise in the business. (4 marks)