QUESTION 1
1. In your own words, differentiate between Debt and Equity funding options for Corporates.
2. Briefly explain the various primary market equity funding mechanisms available to Corporates today.
3. Draw a detailed graph highlighting the historic relationship between the risk and return of five securities across the two main asset classes over time.
QUESTION 2
1. Derive the inverse relationship between Price and Yield in debt markets using a property-based example where the market price doubles in value but ultimately falls by one-third of the initial price and where the initial rental yield is 6%. Include an explanation or commentary along with your calculations and proof.
2. Highlight the apparent nuance or bias in Warren Buffett’s infamous 2012 letter.
3. Calculate the current total value of Gold in Euro based on today’s spot rates using both Warren Buffett’s valuation and annual output metrics in 2012.
4. Comment on the performance of gold in March 2020 and throughout 2008 in the context of ‘Risk-Off’ sentiment and broader market volatility.
QUESTION 4
Given that the Share Price is equal to the product of the Earnings per Share and the PriceEarnings Ratio or ‘Multiple’, P = EPS x PE, where P = $50 and EPS = $2.00
a. Detail the effect that a 10% change in Earnings per Share (EPS) and a 10% change in the Price-Earnings Ratio (PE) might have on the Share-Price (P).
b. For a short-biased investor which scenario is ideal and why?
c. What type of stock does this resemble and why?
d. Assuming a fifteen percent rise in EURUSD over the same timeframe calculate the equivalent return in Euro when there is an increase in earnings and multiple expansions.
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