Your firm recently divested some non-core assets and now has a significant amount of excess cash....

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Finance

Your firm recently divested some non-core assets and now has asignificant amount of excess cash. Branda Sim, the CEO, isconsidering investing in either Singapore Technologies EngineeringLimited (“STE”) shares or 10-year Singapore Government Securities(“SGS”) or a combination of both. She knows that you are studying aFinance course, and she is seeking your advice.

Based on your research, the following market data wasobtained:

Information relating to STE
Date Share Price ($)
Dividends Per Share (Cents)
31-Dec-13 3.59 15
31-Dec14 3.25 15
31-Dec-15 2.83 15
31-Dec-16 3.30
31-Dec-17 3.37 0.15
31-Dec-18 3.72 0.15
As at December 2018, beta is 0.72.

Information relating to SGS
Date Bond Price
31-Dec-13 101.61
31-Dec14 106.21
31-Dec-15 98.15
31-Dec-16 97.08
31-Dec-17 112.47
31-Dec-18 104.94
The coupon rate is 2.75% per year and will mature in December2023.

Other market data

• Market risk premium = 5.5%
• Inflation rate = 1.2%

(a) Calculate the annual returns for both STE and SGS forthe 5 years 2014 to 2018.

Answer & Explanation Solved by verified expert

3.9 Ratings (800 Votes)

Annual returns for STE Annual returns for a stock is made of 2 components Price appreciation ie capital gains or losses and dividends Nominal Annual Returns Price at end of year Price at beginning of year Dividends Real annual return Nominal annual return Inflation rate For 2014 Nominal Annual Returns 325 359 015 019 Nominal Annual returns 019 359 00529 529 Real Annual returns 529 12 649 See Answer

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Date	Share Price ($)	Dividends Per Share (Cents)
31-Dec-13	3.59	15
31-Dec14	3.25	15
31-Dec-15	2.83	15
31-Dec-16	3.30
31-Dec-17	3.37	0.15
31-Dec-18	3.72	0.15

Date	Bond Price
31-Dec-13	101.61
31-Dec14	106.21
31-Dec-15	98.15
31-Dec-16	97.08
31-Dec-17	112.47
31-Dec-18	104.94