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.
