[Joephil]

It is the beginning of 2006. You are considering purchasing shares in ANZ. On analysis of the actual and forecast information available you asses the following:
Dividend per share in : 2005 ($1.01), 2006 ($1.10), 2007 ($1.17), 2008 ($1.30).
Earnings per share in: 2005 (1.45), 2006 (1.62), 2007 (1.81), 2008 (2.00)
P/E ratio in: 2006 (15.03), 2007 (13.4), 2008 (12.0)
Market P/E in : 2006 (18.87), 2007 (14.25), 2008 (12.66)
Beta in 2006 (1.15) and 3 years Average ROE in 2006 (10%)

In addition, you observe the current return on 90 day government bills to be 5.5%p.a, the historical risk premium on the market to be 8%p.a. ANZ pays dividends at the end of each year and the trade on ANZ was at $22.80 per share.

a.) Use the dividend valuation model to determine an intrinsic value of an ANZ shares given this information. Assume that the average ROE is expected to remain stable, the payout ratio is expected to remain stable from 2008 on, and the growth rate in dividends is expected to correspond to the sustainable growth rate from 2008 onwards.


b.) Given the observed current market price for ANZ, and the estimated earnings for 2006, what value is the market currently placing on growth opportunities? Assume Ke=15%


C.) Do you consider ANZ shares to be under or overvalued by the market?

[Joephil]

Natasha holds 6000 shares in BHP Billiton. She bought the shares several years ago at $4.85, and the shares are now trading at $7.50. Natasha is concerned that the market is beginning to soften; she doesn't want to sell the shares, but she would like to be able to protect the profile she has made. She decides to hedge her position by buying six puts on BHP Billiton; the three month puts carry a strike price of $7.50 and are currently trading at $0.25.

a.) How much profit or loss will she make on her total portfolio if the price of BHP Billiton does indeed drop to $6 a share by the expiration date on the puts?

b.) How would she do if the share kept going up in price and reached $9 a share by the expiration date?

c.) What do you see as the main advantage of using puts as hedge vehicles?

[Joephil]

Sara Pozzini purchased 3000 shares of Writeline Communications Limited at $5.50 per share using a margin loan to finance 50% of the purchase. She held the shares for exactly four months and sold them with out any brokerage costs at the end of that period. During the four month period, the shares paid $ 0.15 per share in cash dividends. Sara was charged 9% annual interest on the margin loan. The maximum loan to value ration allowed by the margin leader was 75%.

a.) Calculate the initial value of the transaction, the margin loan balance and the equity position on Sara's transaction.

b.) For each of following share prices, calculate the actual margin loan to value percentage and indicate whether Sara's margin loan account would have excess equity or to be subject to a margin call. Assume there is no interest incurred in the loan. i.) $4.50 ii.) 3.30

c.) Calculate the dollar amount of (1) Dividends received and (2) interest paid on the margin loan during the four-month period.

d.) If the sale price at the end of the four-month holding period is $6, calculate Sara's nominal annualised rate of return on the Write Communications share transaction.

[Joephil]

1 a.) Warner Company, which is a manufacturer of computer parts, has been in business only a few years. Its board of directors decided to pay a dividend next year to help boost the attractiveness of its shares. It will pay $0.28 in dividends per share next year, after which its dividends are expected to grow at 5% p.a into the foreseeable future. Given a share beta of 2.1, a market rate of return of 9%, and a 6% T-bill rate, should the company shares be purchased if they are currently selling for $3.50?

b.) As a financial analyst, however, you have decided to take to into consideration the life cycle of the industry and have predicted that the current growth rate of 5% will be reduced to 3% from year 4 and the latter growth rate will continue into an indefinite future. Would you be your decision now?

[Joephil]

It is the beginning of 2006. You are considering purchasing shares in ANZ. On analysis of the actual and forecast information available you asses the following:
Dividend per share in : 2005 ($1.01), 2006 ($1.10), 2007 ($1.17), 2008 ($1.30).
Earnings per share in: 2005 (1.45), 2006 (1.62), 2007 (1.81), 2008 (2.00)
P/E ratio in: 2006 (15.03), 2007 (13.4), 2008 (12.0)
Market P/E in : 2006 (18.87), 2007 (14.25), 2008 (12.66)
Beta in 2006 (1.15) and 3 years Average ROE in 2006 (10%)

In addition, you observe the current return on 90 day government bills to be 5.5%p.a, the historical risk premium on the market to be 8%p.a. ANZ pays dividends at the end of each year and the trade on ANZ was at $22.80 per share.

a.) Use the dividend valuation model to determine an intrinsic value of an ANZ shares given this information. Assume that the average ROE is expected to remain stable, the payout ratio is expected to remain stable from 2008 on, and the growth rate in dividends is expected to correspond to the sustainable growth rate from 2008 onwards.


b.) Given the observed current market price for ANZ, and the estimated earnings for 2006, what value is the market currently placing on growth opportunities? Assume Ke=15%


C.) Do you consider ANZ shares to be under or overvalued by the market?

Please provide step by step calculations for my understanding. I really appreciate your help.

[Joephil]

1.) Natasha holds 6000 shares in BHP Billiton. She bought the shares several years ago at $4.85, and the shares are now trading at $7.50. Natasha is concerned that the market is beginning to soften; she doesn't want to sell the shares, but she would like to be able to protect the profile she has made. She decides to hedge her position by buying six puts on BHP Billiton; the three month puts carry a strike price of $7.50 and are currently trading at $0.25.

a.) How much profit or loss will she make on her total portfolio if the price of BHP Billiton does indeed drop to $6 a share by the expiration date on the puts?

b.) How would she do if the share kept going up in price and reached $9 a share by the expiration date?

c.) What do you see as the main advantage of using puts as hedge vehicles?

Please help me! I really appreciate for your kindness.

[Joephil]

Sara Pozzini purchased 3000 shares of Writeline Communications Limited at $5.50 per share using a margin loan to finance 50% of the purchase. She held the shares for exactly four months and sold them with out any brokerage costs at the end of that period. During the four month period, the shares paid $ 0.15 per share in cash dividends. Sara was charged 9% annual interest on the margin loan. The maximum loan to value ration allowed by the margin leader was 75%.

a.) Calculate the initial value of the transaction, the margin loan balance and the equity position on Sara's transaction.

b.) For each of following share prices, calculate the actual margin loan to value percentage and indicate whether Sara's margin loan account would have excess equity or to be subject to a margin call. Assume there is no interest incurred in the loan. i.) $4.50 ii.) 3.30

c.) Calculate the dollar amount of (1) Dividends received and (2) interest paid on the margin loan during the four-month period.

d.) If the sale price at the end of the four-month holding period is $6, calculate Sara's nominal annualised rate of return on the Write Communications share transaction.

Please help me, I really appreciate for your kindness.

[Joephil]

a.) Warner Company, which is a manufacturer of computer parts, has been in business only a few years. Its board of directors decided to pay a dividend next year to help boost the attractiveness of its shares. It will pay $0.28 in dividends per share next year, after which its dividends are expected to grow at 5% p.a into the foreseeable future. Given a share beta of 2.1, a market rate of return of 9%, and a 6% T-bill rate, should the company shares be purchased if they are currently selling for $3.50?

b.) As a financial analyst, however, you have decided to take to into consideration the life cycle of the industry and have predicted that the current growth rate of 5% will be reduced to 3% from year 4 and the latter growth rate will continue into an indefinite future. Would you be your decision now?

[J_9]

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