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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.

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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
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Required:
(1) Should Murky Oil Ltd. accept the project? (Support your answer by appropriate calculations)
(11 marks)
(2) Briefly discuss the reasons of why venture capitalists always require relatively high returns, e.g. 60% on their investments. Such high returns cannot be explained as being a reward for systematic risk according to the capital asset pricing model (Timmons, 1999).
(9 marks)

(question continues over page)
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Part 2
The mean and standard deviation of returns on the equity shares of two companies, Hello plc and Goodbye plc, are as follows:
Expected return
Hello plc shares
Goodbye plc shares

0.15
0.17

Standard deviation
0.35
0.45

The correlation coefficient between the returns of the two companies’ shares is 0.3. Assume the risk free rate of return is

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