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a) What is portfolio theory and what are the limitations of this theory (8marks) b)...

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a) What is portfolio theory and what are the limitations of this theory (8marks) b) A Company has a share value of Sh.127 (ex-div) and has recently paid divided of sh.8 per share. If dividend growth is to be approximately 4% per annum into the foreseeable future, Calculate the cost of equity (3 marks) c) Tiropes holds the following shares in his portfolio which have these expected Velins Shares proportion% Expected Return% A 25 20 B 15 10 C 30 15 D 30 25 a) Compute the expected return. (4marks) d) Returns of Kipra Ltd shares have a standard deviation of 12% twice as high as that of the market. It is estimate that the Correlation Coefficient of the market and Kipra Ltd is 0.45. If the estimated market return is 17% and the return on the government bond is 90%, Calculate a) The beta of Kipra Ltd shares. b) The cost of equity for Kipra Ltd. (4marks d) Stima Ltd and Power Ltd are identical in every way except that Power has 25% at the risk free rate f 10% whereas Stima Ltd is all equity financed. Calculate both Companies WACC (6marks)

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