NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JULY 2018 EXAMINATION

COURSE CODE: BFN721                                                               CREDIT UNITS: 2

COURSE TITLE: INVESTMENT AND PORTFOLIO MANAGEMENT

TIME ALLOWED: 2 Hrs

INSTRUCTIONS:   1. Attempt question number one (1) and any other (2) questions.

                                   2. Question number 1 carries 30 marks, while the other two (2)  questions carry 20 marks each.

1a. The cash flows and probability estimate of dividend for a year on UAC Plc share are as shown below:

Event                          Cash flow                   Probability

1                                  N8.50k                        0.65

2                                  N7.50k                        0.25

3                                  N6.00k                        0.10

Required

Calculate the expected value of cash flow.                                                   (15 marks)

b. Write short notes on the following risk management strategies:

i. Risk Avoidance

ii. Risk Reduction

iii. Risk Retention

iv. Risk Transfer                                                                                             (10 marks)

c. List any five (5) methods that can be used in measuring risk in investment analysis. (5 marks)

2a. Suppose that a portfolio has the following returns with the associated probabilities.

Return X                                 Probability

7%                                           0.2

8%                                           0.3

12%                                         0.4

15%                                         0.1

Required to calculate:

Calculate the expected return of the portfolio.                                              (10 marks)

b. Discuss the following various variables as associated with investment.

 i. Portfolio Analysis

ii. Portfolio Selection

iii. Portfolio Evaluation

iv. Portfolio Revision

v. Security Analysis                                                                                        (10 marks)

3a. An investor owns a portfolio whose market model is estimated as:

     Rp = 2.3 + 0.85 Rm+ep

If the expected return on the market index is 17.5 per cent, what is the expected return on the investor's portfolio?                                                                                       (5 marks)

b. What are the reasons for establishing the Nigerian money market?         (7 marks)

c. Discuss traditional financial institutions and its benefits?                                    (8 marks)

4. Cadbury Nigeria Plc wishes to determine its historic beta coefficient in order to decide the cost of capital. Its financial manager has decided to use linear regression using a sample of 6 months data about the return on Cadbury Nigeria ordinary shares and the market as a whole.

The sample data for the first 6 months are given below:

Monthly Return On:

Month             Market Index (%)                   Cadbury shares (%)

1                                              +7                                            +4

2                                              +5                                            +3

3                                              -2                                             -5

4                                               0                                             -3

5                                              +1                                            +2

6                                              +2                                            +4

A dividend of 15k per share was paid by Wisdom plc in six months. The month-end price is shown ex-div,

Required to:

Use the data above to calculate a beta value for Cadbury Nigeria Plc.                    (20 marks)

5a. Explain briefly five roles of Capital Market investment in the economic development of Nigeria.       (10 marks)

b. What do you understand by the Weak Form Efficiency?                                      (10 marks)