TEST 1 MAF653 - NOV 2021
PUNCAK ALAM (COMMON TEST)
1 hour 40 mins
Question 1
The ordinary shares of Maraket Bhd (Maraket) is trading at RM5 per share with 500,000 shares
outstanding. The par value is RM1.00 per share. Maraket plans to issue new shares through a
rights issue which allows shareholders to buy one new share at RM2.50 per share for each four
existing shares hold.
Ms Nayli, one of the shareholders owns 2,000 unit of Maraket’s shares. Which of the following
action would not change the wealth of Ms Nayli?
A.
B.
C.
Acquiring 150 shares which cost her RM375 and managed to sell 200 rights for
RM2.00 per share.
Spent RM1,250 to acquire Maraket’s shares through right issue.
Received RM800 from selling his right to acquire Maraket’s shares
(2 marks)
Question 2
Due to bad economic condition, an investor forecast that one of the stocks in his portfolio is
declining in price. Currently the shares are traded at RM3.00 per share. The investor instructs the
broker to sell if the price falls to RM2.00 per share. This is known as:
A. Market order
B. Limit order
C. Stop loss order.
(1 marks)
Question 3
Souville Bhd’s expected earnings after taxes (EAT) is RM480 million. At present the company has
400 million shares outstanding and a PE ratio of 8. Mr Johan is currently advising a client whether
or not to buy Souville Bhd’s ordinary shares. He should suggest the client to buy Souville Bhd’s
ordinary shares if it is currently traded at ______ per share.
A. RM9
B. RM10
C. RM11
(2 marks)
Question 4
The Board of Directors of Millea Bhd had announced payment of RM2.60 for annual dividend per
share for next year. The investor's required rate of return is 14%. Calculate the growth rate if the
intrinsic value of Millea’s share is RM26.
A. 24%
B. 10%
C. 4%
(2 marks)
Question 5
Samudera Bhd intends to pay a RM2.00 dividend per share in year one and the investor’s required
rate of return on Samudera Bhd’s stock is 15%. Samudera Bhd’s estimates its dividend will grow
at a stable rate of 4% in year two until year 4. The dividend growth rate will increase annually by
1% in year 5, then steadily increase to 6% per annum in perpetuity.
Calculate the intrinsic value of Samudera Bhd’s stock.
A. RM21.00
B. RM16.04
C. RM16.69
(3 marks)
Question 6
Mary Kay is considering an investment in the stock of Kesuma Bhd. The company pays dividend
of RM2.70 and expects the dividend to grow at 5% per year until perpetuity. The current quoted
price of Kesuma’s stock is RM38. Determine the maximum price that Mary Kay is willing to pay
for the stock of Kesuma Bhd if the required rate on investment is 13%.
A. RM36.34
B. RM35.43
C. RM37.30
(2 marks)
Question 7
Bronze Bhd is a retail business company. It has earnings per share (EPS) for the current year
amounting to RM9.50 The average P/E ratio for retail business industry is between 10.75 to 12.5
times. Recently, Bronze Bhd has incurred capital budgeting on opening new outlet at few
shopping malls and the company is classified in high growth stage.
Which of the following is the best estimate of Bronze Bhd’s share price:
A. RM118.75
B. RM110.44
C. RM102.13
(2 mark)
Question 8
Platinum Limited suspended its dividend at the start of the year 2012 and has not reinstated its
dividend until end of the year 2019. Suppose Platinum Limited resumes paying dividend in July
2020 to be RM0.25 per share and paid annually thereafter with the expectation of growth rate at
5% per year constantly. What is the value per share of Platinum Limited at the start of the year
2021 if the equity cost of capital is 15%? Choose the nearest answer.
A. RM2.50
B. RM2.55
C. RM2.63
(2 mark)
Question 9
The share prices Emerald Bhd, a penny stock closed higher in the market, increasing by 0.2% to
RM0.95. The analyst forecast that the beta is quite high volatile at 1.85 indicates the prices
fluctuation of the stock is greater than market. Last year, RM0.05 dividend per share was declared
and paid by the firm at a growth rate 6% per year. The market risk premium is 5% and treasury
bills currently yield at 3%. Applying the dividend growth model, advise Mr. Gilmart on the
investment in Emerald Bhd:
A. Buy stock Emerald Bhd because the intrinsic value below its market price
B. Do not invest because the intrinsic value of Emerald Bhd is below its market price
C. Invest in Emerald Bhd because the intrinsic value above its market price
(3 mark)
Question 10
The dividend per share paid to the shareholders’ Gold Ltd for the year is RM0.45. Five years ago,
Gold Ltd paid RM0.25 dividend per share to its shareholders. The required rate of return is
estimated to be at 15%. Calculate the dividend growth rate for Gold Ltd. Choose the nearest
answer.
A. 10.3%
B. 12.5%
C. 13.6%
(2 mark)
Question 11
The constant dividend growth model signifies the value of the firm as:
A. An expected cash flow derived from the total amount received in dividends and from selling
of stock on the investor’s investment.
B. A measure of the share value using an earning yield basis.
C. A dividend level and cost of capital all equity firm adjusted by the growth rate of dividend.
(1 mark)
Question 12
Best Bhd has just announced that its dividend per share for the previous year was RM0.40. Best
Bhd is all-equity firm that finances its investments from retained earnings. The return on equity is
10%, and its dividend payout ratio is 50%. Assess the value of Best Bhd’s share if the required
return from the investors is 8%.
Formula: g = ROE X DPR
A. RM14
B. RM13
C. RM15
(2 marks)
Question 13
Virgo Airlines will pay a $4 dividend next year on its common stock, which is currently selling at
$100 per share. What is the market's required return on this investment if the dividend is expected
to grow at 5% forever?
A. 9 percent
B. 5 percent
C. 7 percent
(2 marks)
Question 14
Interest rates and bond prices
A. move in the same direction.
B. move in opposite directions.
C. sometimes move in the same direction, sometimes in opposite directions.
(1 mark)
Question 15
The expected rate of return on a bond if bought at its current market price and held to maturity.
A. yield to maturity
B. current yield
C. capital gains yield
(1 mark)
Question 16
When the market's required rate of return for a particular bond is much higher than its coupon
rate, the bond is selling at:
A. a premium.
B. a discount.
C. face value.
(1 mark)
Question 17
A bond that has only one payment, occurs at maturity, defines which one of the following?
A. Callable
B. Floating rate
C. Zero coupon
(1 mark)
Question 18
Your broker offers you the opportunity to purchase a bond with coupon payments of $90 per year
and a face value of $1000. If the yield to maturity on similar bonds is 8%, this bond should:
A. Sell for the same price as the similar bond regardless of their respective maturities.
B. Sell at a premium.
C. Sell at a discount.
(1 mark)
Question 19
Kinrara Bhd issued a RM1,000 par value callable bond. The bond pays a coupon rate of 8% per
year while other similar risk type of investment yields 10% per annum. The remaining years to
maturity for the bond are 10 years. If you expect the above bond to be called in three (3) years’
times, with two (2) years interest as a call penalty, calculate the intrinsic value of the bond. Choose
the nearest answer.
A. RM1,070.46
B. RM950.25
C. RM984.78
(2 marks)
Question 20
A company has issued 7% bond with nominal value of RM100 each, payable annually. The bond
will be redeemed in seven years’ time at a 5% premium to nominal value. The discount rate is
9%. Calculate the market value of each bond. Choose the nearest answer.
A. RM89.93
B. RM92.67
C. RM103.14
(2 marks)
Question 21
Assume you sell short 100 shares of common stock at RM45 per share, with initial margin at 50%.
What would be your rate of return if you repurchase the stock at RM40 per share? The stock paid
no dividends during the period, and you did not remove any money from the account before
making the offsetting transaction.
A. 25%
B. 22%
C. 20%
(2 marks)
Question 22
Which of the following statements is false?
A. One advantage of quoting the yield to maturity rather than the price is that the yield is
independent of the face value of the bond.
B. Unlike the case of bonds that pay coupons, for zero-coupon bonds, there is no simple
formula to solve for the yield to maturity directly.
C. Because we can convert any bond price into a yield, and vice versa, bond prices and
yields are often used interchangeably.
(1 marks)
Question 23
A bond has a market price that exceeds its face value. Which of the following features currently
apply to this bond?
I. discounted price
II. premium price
III. yield-to-maturity that exceeds the coupon rate
IV. yield-to-maturity that is less than the coupon rate
A. I and III only
B. II and III only
C. II and IV only
(2 marks)
Question 24
Assume that you wish to purchase a 10-year bond that has a maturity value of RM1,000 and
makes semi-annual interest payments of RM40. If you require a 10 percent nominal yield to
maturity on this investment, what is the maximum price you should be willing to pay for the bond?
Answer to the closest value)
A. RM 913.10
B. RM 823.57
C. RM 875.39
(2 marks)
Question 25
Warrants are often detachable. If an investor holds a bond with attached warrants, he or she can
sell the warrants and keep the bond. Explain what detachable warrant is.
A. Detachable warrants offer less flexibility than non-detachable warrants, and as such, they're
typically more likely to attract investors.
B. Detachable warrants are a warrant that can be sold separately from the security to which it
was originally attached.
C. Detachable warrants are the same as call options. Call options are detachable, and they
often expire after warrants matured.
(1 mark)
Question 26
In Malaysia, there are two rating agencies available which are Rating Agency Malaysia Berhad
(RAM) and Malaysian Rating Corporation Berhad. Explain the meaning of ‘AAA’ rating used by
RAM.
A. An entity rated AAA has a superior capacity to meet its financial obligations. This is the
highest long-term corporate credit rating assigned by RAM.
B. An entity rated AAA has an inferior capacity to meet its financial obligations. This is the lowest
long-term corporate credit rating assigned by RAM.
C. An entity rated AAA has a strong capacity to meet its financial obligations. The entity is
resilient against adverse changes in circumstances, economic conditions and/or operating
environments.
(1 mark)
Question 27
Explain the relationship between coupon rate, bond’s yield, maturity period and price.
A. When the yield is higher than the coupon, price is at par irrespective of maturity period.
B. When the coupon is higher than the bond’s yield, the bond’s price decreases with the
decrease in maturity period.
C. When the coupon is lower than yield, the bond price is lower than par. The longer the maturity
period, the lower is the bond price
(1 mark)
Question 28
The bond is a debt security, under which the issuer owes the holders a debt .Bonds are important
source of financing and have contributed immensely to the economic growth of the country. Briefly
explain the term ‘zero coupon bond’.
A. A zero-coupon bond is an equity security instrument that does not pay interest.
B. Zero coupon bonds are bond with interest where the interest payment discounted into its
price
C. The difference between the purchase price of a zero-coupon bond and the par value
indicates the investor's return.
(1 mark)
Question 29
RM600 par-value convertible debenture is selling at RM620. Calculate the conversion price if
the conversion ratio is 20.
A. RM31
B. RM30
C. RM1
(1 mark)
Question 30
Mr. Basit buys a ten-year bond that pays 5% coupon per annum and has a yield of 10%. The face
value of the bond is RM100. Calculate the present value of the bond price if Mr. Basit must pay
RM20 more than the par value of the bond at the end of the maturity period. Choose the nearest
answer.
A. RM76.98
B. RM69.27
C. RM83.13
(3 marks)
END OF TEST QUESTIONS