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1.Use the covered interest parity condition to fill in the following table: US Interest UK interest Spot exchange Forward rate rate rate exchange rate 10% 8 % 10% % 5% % 0 % 9% 2.00 S/ 2.00 $£ $/£ 2.00 S/E S'E 2.04 $/ 2.10 SI? 1.98 S/E
2.
q1) compare these to companies ratios
|
RATIO |
AFFIN BANK |
CITIBANK BERHAD |
|
2019 RM’000 |
2019 RM’000 |
|
|
Asset Management Efficiency Ratio |
5.58% |
6.99% |
3.You expect KT Industries (KTI) will have earnings per share of $4 at the end of this year and expect that they will pay out $2 of these earnings to shareholders in the form of a dividend at the end of this year. KTI will retain the rest of its earnings to reinvest in new projects with an expected return of 5%. Suppose KTI will maintain the same dividend payout rate, retention rate, and return on new investments in the future. The expected growth rate for KTI's dividends is closest to: 2.5% 5.0% 2.0% 4.5% 1.0%
1.
Solution:
Forward price = Spot Price * ( 1+ Interest rate in the US) / (1+ Interest rate in the UK)
1st Row
Forward price = Spot Price * ( 1+ Interest rate in the US) / (1+ Interest rate in the UK)
Forward rate = 2.0 * ( 1+10%) /(1+5%) = 2.10
2nd Row:
Forward price = Spot Price * ( 1+ Interest rate in the US) / (1+ Interest rate in the UK)
2.04 = 2.0 * ( 1+8%) /(1+Interest rate in the UK)
1+ interest rate in the UK = 2.16/2.04 = 1.0588
Interest rate in the UK = 1.0588-1 = 5.88% = 6%
3rd row
Forward price = Spot Price * ( 1+ Interest rate in the US) / (1+ Interest rate in the UK)
2.1 = Spot rate * ( 1+10%) /(1+0%)
Spot rate = 2.1 /1.1 = 1.90
4th Row:
Forward price = Spot Price * ( 1+ Interest rate in the US) / (1+ Interest rate in the UK)
1.98= 2.0 * ( 1+interest rate in the US) /(1+9%)
1+ interest rate in the US = 1.10
Interest rate in the US = 10%
2.The Asset Management Turnover Ratio assist an organization to equate the assets of an organization to its sales revenue. This ratio indicates how efficaciously an organization is utilizing its assets to generate the revenues. Further, it indicates the ability of a company to transform its assets into the sales.
High asset turnover ratios are appropriate and desirable as it signifies the message to the stakeholders and prospective investors of an organization that they are utilizing their assets proficiently to produce sales. The higher the asset turnover ratios, the more sales an organization is engendering from its assets.
Thus, in the present case, it can be stated that Affin Bank generated RM 5.58 in sales on every RM 1 they have invested in the assets. Whereas, Citi Bank generated RM 6.99 in sales on every RM 1 they have invested in the assets. Consequently, it can be clearly stated that Citi Bank have utilised their assets in a better way as compared to Affin Bank. Accordingly, an investor or any stakeholder will prefer Citi Bank over Affin Bank while comparing both of them on Asset Management Turnover Ratio.
3.
given eps = $ 4
dividend = $ 2
payout ratio = dividend / EPS
=2/4
=0.5
Retention Ratio = 1- payout ratio
=1-0.5
=0.5
we know that
growth rate = retention ratio * return on equity
=0.5 * 5 %
=2.5%
OPTION A IS CORRECT
