UNIVERSITY OF TECHNOLOGY, JAMAICA COLLEGE OF BUSINESS AND MANAGEMENT SCHOOL OF BUSINESS ADMINISTRATION Final Examination, Semester 1 AY 2019/20 Module Name: Securitics Analysis Module Code: FIN 4003 Date: December 2019 Theory/Practical: Theory Groups: BBA4/Western Campus Duration: 2. Hours and 15 minutes INSTRUCTIONS: 1. This paper has four (4) pages including this cover page. 2. This paper has one section with five (5) questions 3. Please read questions carefully and answer any four (4) 4, Students should not leave the examination room with any part of the examination paper. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SOSECTION A - 100 MARKS Instructions: This section contains Five (5) questions each worth 25 marks each. Please answer any four. Juestion one (1) __25 Marks ‘You are given the following information regarding prices for a sample of stocks: USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS Price Shares, COMPANY A BC sae Day 12 23 52 500, 350 250 Day 2 10 22 55 500* 350 250 Day3 [ear pease) 1000 350 250+* Day4 Oe ase ce19: 1000 350 750 *Split at Close of Day 2 *#Split at Close of Day 3 (@ Caleulate a Dow Jones Industrial Index for days 1,2,3 & 4 (6 Marks) (b) Calculate the Jamaica Stock Exchange Index for Day 3 if the base period is Day 1 with an initial index value is 100. (4 Marks) (©) Global Stock Index is a value weighted index with just 2 stocks in the index: ABC stock and XYZ stock. ABC ended 2005 at a price of $55 and had | million shares outstanding. XYZ stock ended 2005 at a price of $32 and had 4 million shares outstanding. ABC had a 2-for-1 split in 2006 at a new price of $27.50. By the end of 2006 ABC closed at $29 and XYZ stock closed at $35 for 2006. Calculate the new value of the index. (8 Marks) (@ _ Discuss briefly several uses of security-market indexes. (4 Marks) (©) What major factors must be considered when constructing a market index? (3 Marks) Question 2_(25 marks) (a) Janene company has a net free cash flow of $8 million and is expected to grow at 20% during the next 3 years and then grow at 7% thereafter, The company has debt of $120 million and 5,000,000 shares of outstanding common stock. The company pays no dividends and since it would like to retain its earnings, it is not expected to pay any dividends. What are the terminal and intrinsic values of the stock assuming the discount rate is 11%? (9 Marks) (b) Explain how the concept of intrinsic value fits into the security analysis process. (3 Marks) (© The Big Heel company has net profit of $10 million, sales of $150 million and 2.5 million common stocks outstanding. The company has total assets of $75 millionand total stockholders equity of $45 million. It pays $1 per share in dividends and the stock trades at $20 per share. Given this information determine the following for the company: (10 Marks) i) Big Heel’s EPS ii) The Price ~to-book value ratio iii) ‘The firm’s P/E ratio iv) The net profit margin v) The Dividend payout ratio (@ Assume a firm has a current P/E ratio of 15 and its current EPS is $1.25. Ithas increased its ccarnings per share by 6% annually in the past and this rate is likely to continue for some time, If the P/E ratio is expected to increase to 17 in five years, what is the stock price expected to be in year five? (@ Marks)@ () © @ Question 3 (25 marks) ‘Assume that a bond has 5 years left to maturity and pays its 6% coupon semi-annually and the prevailing interest rate for this bond is 8%. Calculate the price of the bond. (8 Marks) Compute the duration and modified duration of the bond. (10 Marks) Using modified duration, compute the change in price of the bong if the interest rate increases by 50 basis points. @ Marks) Calculate the current market price of a zero coupon bond with a face amount of $1,000, maturing in 30 years, and priced to yield 6%. (4 Marks) Question 4 (25 marks) Consider an option selling for $4 in which the exercise price is $30 and the price of the underlying is $25. (@) Determine the value at expiration and the profit for the buyer under the following ‘outcomes if the transaction was a call option: i, The price of the underlying at expiration is $33 @ marks) ii, ‘The price of the underlying at expiration is $24 @ marks) (0) Determine the value at expiration and the profit for the buyer under the following outcomes if the transaction was a put option, i, The price of the underlying at expiration is $40 (2 marks) ii, The price of the underlying at expiration is $22 (2 marks) (©) Determine the following: i, ‘The maximum profit to the buyer (maximum loss to the seller) (3 marks) ii, The maximum profit to the seller (maximum loss to the buyer) (4 marks) (® Identify two main investment attractions to put and call options. (4 marks) (©) Briefly explain the risks of engaging in stock option trading (6 marks)Day (a) (b) (c) Closing Price Closing Pi $25.25 $30.00 $26.00 12 $30.00 $27.00 13 $31.00 $28.00 14 $31.50 $27.00 Is $31.00 $28.00 16 $32.00 $27.50 7 $29.00 $29.00 18 $29.00 $27.00 19 $28.00 $28.00 20 $27.00 Calculate a ten-day moving average for Days 11 through 20. Explain the signals you should act on based on the moving average data?” Compute and interpret the NASDAQ TRIN ratio and interpret its meaning. NASDAQ 924 Declining issues 2197 Unchanged issues 135 Total issues 3256 New Highs 50 New Lows 3 Up Volume Down Volume Unchanged Volume Total Volume 427,350,560 1,689,208,704 19,526,884 2,136,086,144 (d) What are some disadvantages of technical analysis? END OF PAPER (10 marks) (4 marks) (7 marks) (4 marks)