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Bussiness Finance 1 Cat 1 Question Paper
Bussiness Finance 1 Cat 1
Course:Bachelor Of Economics And Finance
Institution: Kenyatta University question papers
Exam Year:2012
KENYATTA UNIVERSITY
DEPARTMENT OF ACCOUNTING AND FINANCE
SEMESTER THREE 2011/2012
BAC: 203 BUSINESS FINANCE 1 CAT
DATE:10HT JULY 2012 TIME: 1 HOUR 20 MIN
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INSTRUCTIONS:Answer all questions.
QUESTION ONE (14 marks)
a. Assune that it is now 1st Jan 2012 and you will need sh. 100000 om Jan 1, 2016.Your bank compounds interest at an 8% annual rate.
i) How much must you deposit on January 1,2013 , to have a balance of sh. 100000 on Jan 1,2016.
(2 marks)
ii)If you want to make equal payments on each January 1 from 2013 through 2015 to accumulate the sh.100,000, how large must each of the payments be?(3 marks)
iii)To help you reach your sh. 100,000 goal, your friend offers to give you sh. 40,000 on January 1,2012. You will get a part time job and make 6 equal such installments of equal amounts each 6 months thereafter. If all the this money is deposited in the bank and interest is compounded semi-annually, how large must each of the 6 payments be?(4 marks)
b)Suppose you are offered a 14 year , 10% sh. 100,000 par value bonds at a price of sh. 149,490.
Required:What rate of interest would you earn on your investment if you bought the bond and held it to maturity? (5 marks)
QUESTION TWO
a. Although profit maximization has long been considered as the main goal of a firm, shareholder wealth maximization is gaining acceptance among most companies as the key goal of a firm.
Required:
i)Distinguish between the goals of profit maximization and the shareholder wealth maximization.
(4 marks)
ii)Explain three limitations of the goal of profit maximization.(3 marks)
b.Stocks X and Y have the following probability distributions of expected future returns.
probability X Y
0.1 -10% -35%
0.2 2% 0
0.4 12% 20%
0.2 20% 25%
0.1 38% 45%
Required:
i) Calculate the expected returns of stocks X and Y.(2 marks)
ii) Calculate the standard deviation and the coefficient of the variations for stock X and Y.
(4 marks)
iii)Determine the stock that is less risky. (1 mark)
c. Explain the two advantages of long term debt finance. (2 marks)
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