UNIVERSITY OF DAR ES SALAAM

BUSINESS SCHOOL

DEPARTMENT OF FINANCE

COURSE: FN 202 Financial Management

REVIEW QUESTIONS SET 1
(Discussion During Week 3 and 4)

Question 1:
The Price of TBL share as of Jan 1st 2013 was Tshs. 500. An MTI investment
company bought 1000 shares and used an initial investment of Tshs. 500,000. The
company kept the investment for one year up to December, 2013. During the year,
TBL declared a dividend of Tshs 100 per share and the price of the share went up by
Tshs. 100. What will be the return that MTI Investment Company will get at the end
of the year?

Question 2:
An investor bought a share at Tshs. 1000 and after four years she sold the stock at
Tshs. 1500. With no dividend paid by the stock her returns were 50% over a period of
four years. She therefore concluded that her annual returns were 12.5%. Is she right in
her conclusion?

Question 3:
A portfolio manager of a pension fund for workers in an oil industry recently
commented that she attempted to maintain a well-diversified portfolio. She also
commented that she avoided investing in EXXON, Mobil Shell and other oil stocks.
Oil stocks, comprise over 20% of the market value of all stocks in Standard & Poor’s
500 stock index. How do you reconcile these two comments by the portfolio manager.

Question 4:
Assume a company invested $50 million in a two year asset paying 10 percent interest
per annum and simultaneously issued a $ 50 million one year liability paying 8
percent interest per annum. What would be the impact on the banks net interest
income if at the end of the first year all interest rates increased by one percent point?

Question 5:
Risk is the possibility of loss; the uncertainty that the anticipated returns will not be
achieved. There are various ways that companies use to measure risk. Explain four
ways of measuring risk in portfolio.

Question 6:
a) Briefly explain the objectives and functions of Nairobi stock exchange.
b) How is it different from the Dar es Salaam Stock Exchange.
c) How can an investor make decision on whether to buy shares of a company
listed in DSE or NSE?

Question 7:
Share of five (1,2,3,4,5) companies listed in DSE are projected to have returns of
15%, 20%,12% 25% and 30% respectively. Based on this:

1
 a) If the portfolio consists of all five shares in equal proportions, what are the
expected returns?
b) What is the return of the portfolio if 40% of the funds are put on security of
company 5 yielding a return of 30% and the remainder is divided equally in
the remaining four companies?

Question 8:
The return of T Bills considered as closest substitutes of the risk free rate of return is
6%. The expected return on the market index XYZ is estimated to be 14%. The
portfolio manager has shortlisted following securities for inclusion in the portfolio.

Stock Beta
Sleepwell 0.85
Eatwell 1.15
Livewell 1.25
Funwell 1.65
Stylewell 0.95
Lookwell 1.45

What is the expected return of each of the stock as per CAPM?

Question 9:
What is the difference between Capital Asset Pricing Model (CAPM) and Arbitrage
Pricing Theory (APT). Under what conditions should one use one over the other?