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THE UNIVERSITY OF HULL

The Business School
HKU SPACE

Level 6 Examination

1 August 2010

Current Issues in Finance

Date : 1 August 2010
Time Allowed : 2 hours

Answer THREE questions –
At least ONE question from each section.
Standard calculators (non-programmable) may be used.
Tables are attached.

Do not open or turn over this exam paper, or start to write anything until told to by the Invigilator. Starting to write before permitted to do so may be seen as an attempt to use
Unfair Means.

26143

1

SECTION A
Answer at least ONE question from this section

Question 1
You are considering three investments. The first one is a bond that is currently selling in the bond market at $1,200. The bond has a …show more content…

(7 marks)
(2) Illustrate how using the portfolio an expected return of 15% can be obtained with less risk than by investing wholly in Hello plc. , and calculate the resulting standard deviation of your portfolio.
(6 marks)

TOTAL 33 marks

(continued)

26143

5

SECTION B
Answer at least ONE question from this section

Question 4
(1)

What are the different forms of an informationally efficient stock market?
Explain.
(11 marks)

(2)

Briefly discuss how one can test whether a particular stock market is efficient in semi-strong form.
(11 marks)

(3)

What are the benefits of an efficient market?
(11 marks)
TOTAL 33 marks

Question 5
(1)

In a real world, businesses may be financially constrained for different reasons, being known as ‘capital rationing’. Discuss the key difference between ‘hard’ rationing and ‘soft’ rationing and their implications for investment. (16 marks)

(2)

Explain why businesses invest in overseas and how to invest overseas.
(17 marks)
TOTAL 33 marks

Question 6
(1)

Explain what is meant by the term ‘dividend puzzle’, and discuss the reasons of why many businesses pay dividends to their shareholders.
(17 marks)

(2)

Explain what is meant by the term ‘underpricing’ in an IPO event, and discuss the reasons for the underpricing.
(16 marks)
TOTAL 33 marks

END
26143

6

Formulae



Valuation of Shares - Dividend model (with growth)
P0

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