Which of the stocks do you consider to be of greater risk? Discuss your reasoning

finance

Description

SECTION TWO

STRUCTURED ANSWERS

Answer ONE question.

 

Answer any ONE (1) questions from the TWO (2) listed below.

 

Question 1


a.      Compute the following ratios:

                 i.          Accounts Receivable Turnover ratio;                                                            (3 marks)

               ii.          Accounts Payable Turnover ratio;                                                                 (3 marks)

             iii.          Average Collection Period;                                                                            (3 marks)

             iv.          Average Payable Period;                                                                                (3 marks)

               v.          Quick Ratio;                                                                                                   (3 marks)

             vi.          Gross Profit Margin.                                                                                      (3 marks)

           vii.          Net Profit Margin                                                                                           (3 marks)

         viii.          Debt ratio                                                                                                        (3 marks)

b.     Explain briefly what is factoring?                                                                                         (6 marks)

 

Total 30 marks

 

Questions 2

Given the following probable states of the economy and the expected return on a security in each state:

 

State of Economy 

Probability 

Return of Stock A

Return of Stock B

Recession

0.50

20%

18%

Normal

0.40

45%

35%

Boom

0.20

30%

40%

 

 

 

                 i.          Compute the expected returns for Stock A and Stock B;                              (8 marks)

 

 

               ii.          Compute the standard deviation for Stock A and Stock B;                           (12 marks)

 

 

             iii.          Compute the coefficient of variation for Stock A and B;           and                        (6 marks)

 

 

             iv.          Which of the stocks do you consider to be of greater risk?

Discuss your reasoning                                                                                  (4 marks)

 

 

Total 30 marks

 

 

 

 

Instruction Files

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