Here are the solutions to the practice questions: 1. XYZ has decided to purchase 1,000 Units of shares in UBA Plc and decision was made in January 2019. The shares were purchased at N9 per unit and at the end of February 2019 the market price of the security was estimated to be N6 per share. Calculate the return on investment for XYZ. Step 1: Calculate the original cost of the investment. $$ \text{Original Cost} = \text{Number of Units} \times \text{Purchase Price per Unit} $$ $$ \text{Original Cost} = 1,000 \text{ units} \times \text{N}9/\text{unit} = \text{N}9,000 $$ Step 2: Calculate the current value of the investment. $$ \text{Current Value} = \text{Number of Units} \times \text{Market Price per Unit} $$ $$ \text{Current Value} = 1,000 \text{ units} \times \text{N}6/\text{unit} = \text{N}6,000 $$ Step 3: Calculate the Return on Investment (ROI). $$ ROI = \frac{\text{Current Value} - \text{Original Cost}}{\text{Original Cost}} \times 100\% $$ $$ ROI = \frac{\text{N}6,000 - \text{N}9,000}{\text{N}9,000} \times 100\% $$ $$ ROI = \frac{-\text{N}3,000}{\text{N}9,000} \times 100\% $$ $$ ROI = -0.3333 \times 100\% $$ $$ ROI = \boxed{-33.33\%} $$ 2. JJC Nigeria Ltd is an institutional investor with TopmanPlc and in June 2018, a unit of the share of TopmanPlc was purchased at N18. As at January 2020, the share value of Topmanplo is valuated at N14. What is the return on investment for JJC Nigeria Ltd? Step 1: Identify the purchase price and current price per unit. Purchase Price per Unit = N18 Current Price per Unit = N14 Step 2: Calculate the Return on Investment (ROI). $$ ROI = \frac{\text{Current Price} - \text{Purchase Price}}{\text{Purchase Price}} \times 100\% $$ $$ ROI = \frac{\text{N}14 - \text{N}18}{\text{N}18} \times 100\% $$ $$ ROI = \frac{-\text{N}4}{\text{N}18} \times 100\% $$ $$ ROI = -0.2222 \times 100\% $$ $$ ROI = \boxed{-22.22\%} $$ 3. Assetplc is currently calling for public subscription of its share. Mr BB as an Investor decided to purchase a unit of the share at N40 at the point of subscription. 6 months later his younger brother Mr DD decides to make the same purchase but was offered two units at @ N20. Determine the return on investment for Asset Plc. The question asks for the return on investment for Asset Plc, which is the issuer. However, return on investment is typically calculated for an investor. We will calculate the return for Mr BB, the investor who purchased shares from Asset Plc, based on the implied market price when Mr DD was offered shares. Step 1: Identify Mr BB's purchase price and the implied current market price. Mr BB's Purchase Price per Unit = N40 Mr DD was offered 2 units at N20, implying a current market price of N20 per unit. Implied Current Price per Unit = N20 Step 2: Calculate the Return on Investment (ROI) for Mr BB. $$ ROI = \frac{\text{Current Price} - \text{Purchase Price}}{\text{Purchase Price}} \times 100\% $$ $$ ROI = \frac{\text{N}20 - \text{N}40}{\text{N}40} \times 100\% $$ $$ ROI = \frac{-\text{N}20}{\text{N}40} \times 100\% $$ $$ ROI = -0.5 \times 100\% $$ $$ ROI = \boxed{-50\%} $$ 4. A portfolio contains two securities of DangotePlc and GTB. You as an investor have invested N0.6 Million in DangotePlc considering that the sum of N1Million is under management. DangotePlc has a return on investment of 15% and GTB has a return on investment of 10%. Step 1: Determine the total investment and investment in each security. Total Investment = N1,000,000 (N1 Million) Investment in DangotePlc = N600,000 (N0.6 Million) Investment in GTB = Total Investment - Investment in DangotePlc Investment in GTB = N1,000,000 - N600,000 = N400,000 Step 2: Calculate the weight of each security in the portfolio. $$ \text{Weight of DangotePlc} (W_D) = \frac{\text{Investment in DangotePlc}}{\text{Total Investment}} = \frac{\text{N}600,000}{\text{N}1,000,000} = 0.6 $$ $$ \text{Weight of GTB} (W_G) = \frac{\text{Investment in GTB}}{\text{Total Investment}} = \frac{\text{N}400,000}{\text{N}1,000,000} = 0.4 $$ Step 3: Identify the return on investment for each security. Return on DangotePlc ($R_D$) = 15% = 0.15 Return on GTB ($R_G$) = 10% = 0.10 Step 4: Calculate the portfolio return ($R_p$). $$ R_p = (W_D \times R_D) + (W_G \times R_G) $$ $$ R_p = (0.6 \times 0.15) + (0.4 \times 0.10) $$ $$ R_p = 0.09 + 0.04 $$ $$ R_p = 0.13 $$ $$ R_p = \boxed{13\%} $$ Send me the next one 📸