Question

**Question 2**

**a)** Zam Mutual Fund a broad – based fund of stocks
and other securities with an expected return of 15% and a
volatility of 20%. Currently, the risk-free rate of interest is 3%.
Their broker suggests that they add a real estate fund to their
current portfolio. The real

estate fund has an expected return of 9%, a volatility of 35% and a
correlation of 0.1 with the Zam Mutual Fund. Calculate the required
return and recommend whether Zam Mutual Fund should add the real
estate fund to its portfolio.

**b)** ZamWater Plc a water and sewerage company is
listed on Lusaka Stock Exchange (LuSE). ZamWater services the
Chongwe City area. ZamWater plans to pay K2.36 per share in
dividends in the coming year. If its equity cost of capital is 7.5%
and dividends

are expected to grow by 1.5% per year in the future, estimate the
value of ZamWater’s stock. c) MP
Cellular Plc is a Zambian cellular telephone service provider that
reported net income of K250 million for the most recent fiscal
year. The firm had depreciation expenses of K100 million, capital
expenditure of K200 million and no interest expenses. Working
capital increased by K10 million. Calculate the free cash flow for
MP Cellular Plc for the most recent fiscal year. **(5
marks**

Answer #1

a) b and c)

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