1. An investor that pays income tax of 25% on dividend income is considering investment
into 2 different companies, Company A and Company B.
Company A pays dividends on 1 April and 1 October each year. The last dividend paid
was on 1 October 2020 at 3p per share. Dividends are expected to grow on 1 April each
year by 15% per annum for the first 3 years, and then 3% per annum in perpetuity
thereafter. Dividends on 1 October each year are expected to be the same as the April
dividend earlier in that same year.
(a) Draw a timeline and set out a table showing the timing and value of the
expected dividend stream per share for Company A. [2]
(b) Calculate the ex-dividend price per share for Company A that the investor would
be prepared to pay on 1 March 2021, in order to achieve an annual net effective
rate of return of 8% per annum. [5]
Company B pays dividends quarterly, on 1 February, 1 May, 1 August and 1 November
each year. The last dividend paid was 2p per share on 1 February 2021. Dividends are
expected to remain level until 1 May 2022 when the dividend paid on that date is
expected to increase to 3p per share, and then to continue to increase by 1% every
quarter in perpetuity thereafter.
(c) Draw a timeline and set out a table showing the timing and value of the
expected dividend stream per share for Company B. [2]
(d) Calculate the effective interest rate per quarter !(“)
” , when i = 8% per annum. [1]
(e) Preferably using your answer in (d) above, calculate the price per share for
Company B that the investor would be prepared to pay on 1 March 2021, in
order to achieve an annual net effective rate of return of 8% per annum. [5]
(f) Comment on the valuation of the share dividend stream for each company, and
why from outset you expect one company’s market price per share to be higher
or lower than the other company’s market price per share. [3]
The current market share price for Company A is 120p per share, and for Company B is
110p per share.
(g) If the investor can only invest in one of these companies, which should they
choose, and why? [2]
[Total 20 Marks]
2. On 1 July 2020 the Dutch government issued a government bond bearing coupons
payable quarterly in arrear at a rate of 6% per annum. Capital will be redeemed at 110%
on a coupon date between 15 and 20 years after the date of issue, inclusive, with the
date of redemption being at the option of the borrower.
Investor A, who is subject to income tax at 30% and capital gains tax at 20%, wishes to
invest £100,000 in this stock on 1 May 2021. The investor wishes to achieve a net
redemption yield of at least 5% per annum.
(a) Determine whether investor A would make a capital gain if the loan stock is held
to redemption. [3]
(b) Calculate the maximum price that investor A should pay per £100 nominal of the
loan stock. [6]
(c) Calculate how much Capital Gains tax investor A will pay on redemption if they
purchase £100,000 of the stock at the price in (b) above. [2]
Investor B is not subject to any capital gains tax or income tax and is also considering
investing in the stock on 1 May 2021.
(d) Calculate the minimum gross redemption yield that Investor B would enjoy if
they purchased the stock at the same price as that calculated by Investor A in (b)
above. [5]
(e) Comment on the difference between your answers in (b) and (d) above. [2]
(f) Without doing any further calculations, assuming each investor purchases stock
at the price calculated above, comment on how their respective yields may
change if the borrower decides to redeem the loan on 1 July 2037, immediately
after payment of the coupon then due. [2]
[Total 20 marks]
3. A company is undertaking a new project. The project requires an investment of £4m at
the outset, followed by £2m three months later.
Additional maintenance costs will be incurred from the start of year 2, being £100,000
payable continuously throughout year 2, £103,000 payable continuously throughout
year 3, and increasing by 3% at the start of each year and payable continuously
throughout each year up until the end of year 15.
It is expected that the investment will provide income annually in arrear over a period of
14 years, at a rate of £1.5m per annum, starting at the end of the 2nd year.
After the end of the 15th year there will be no further income from the investment and
the project will end.
(a) Draw a timeline and set out a table showing the timing and value of the
expected cashflows for the project. [2]
Calculate at an effective rate of interest of 10% per annum:
(b) the net present value of the project at the outset [5]
(c) the discounted payback period [6]
(d) the accumulated profit at the end of the discounted payback period [2]
A bank has offered to loan the funds required to the company at an effective rate of
interest of 10% per annum. Funds will be drawn from the bank when required and the
loan can be repaid at any time. Once the loan is paid off, the company can earn interest
on funds from the venture at an effective rate of interest of 7% per annum.
(e) Calculate the accumulated profit at the end of the 15 years. [5]
[Total 20 marks]
[Grand Total: 60 marks]
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
Computer science is a tough subject. Fortunately, our computer science experts are up to the match. No need to stress and have sleepless nights. Our academic writers will tackle all your computer science assignments and deliver them on time. Let us handle all your python, java, ruby, JavaScript, php , C+ assignments!
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
There is a very low likelihood that you won’t like the paper.
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
GET A PERFECT SCORE!!! 
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more