QUESTION ONE

The following information is reported in a daily newspaper with respect to shares traded on the Nairobi Stock Exchange:

	Last 12 months H Shs.	L Shs.	Security	Yesterday Shs.	Previous Deal Shs.	Shares traded
1 2 3 4 5	200.00 90.50 40.00 362.00 140.00	75.00 43.50 4.00 102.00 90.00	Kakuzi Limited Ord. Sh.5 Express Kenya Ltd. Ord. Sh.5 ATH Ltd. Ord. Sh.10 Unga Ltd. Ord. Sh.5 Barclays Bank Ltd. Ord. Sh.10	120.00   Suspended 317.00CB 90.00	130.00CD 43.50   318.00 90.00	10,000

Required

a) Why does the price of a share change? (6 marks)

b) i) What does the CD against Kakuzi’s share price mean? (2 marks)

ii) Under the yesterday’s column for Express Kenya Ltd., there is a dash (-).

Explain. (2 marks)

iii) ATH is indicated as suspended. Explain why a company may be suspended from the stock exchange. (6 marks)

iv) Explain the CB against the Unga share price. (2 marks)

v) What is the meaning of the Ord. Sh.10 indicated against the Barclays Bank?

2 marks)

(Total: 20 marks)

QUESTION TWO

a) In relation to capital markets, differentiate between the terms stock markets and financial markets. (4 marks)

b) The Nairobi Stock Exchange is set to undergo major changes in terms of services when the Central Depository System (CDS) is put in place after the Parliament passes the Bill on the issue.

i) What is the Central Depository System (CDS)? (4 marks)

ii) How will it benefit the parties to be affected by it? (4 marks)

c) The shares of Ndege Airways Company Ltd. have been trading at Sh.8.00 per share for the last several months. The existing shareholders argue that such shares are undervalued. They say that, the shares should normally be trading at around Sh.15 per share.

i) When would a share price said to be unfair? (4 marks)

ii) If the price earnings ratio for Nege Airways Company Ltd. ordinary shares is 2.5

imes while the price earnings ratio of the shares of Piki Piki Company Ltd. is 10 times, which share is more attractive to a potential investor? Give reasons.

(4 marks)

3. a) With reference to capital market, define the following terms:

i) Contango operation (2 marks)

ii) Backwardation (2 marks)

iii) Stags (2 marks)

iv) Role of investment banker (4 marks)

b) Mr. Castro uses a 20% hatch system of timing when to invest in a stock market. In a given year, the top of a given share was Sh.150 and its bottom was Sh.90. During the year, the company paid an interim DPS of Sh.1.50 and a final DPS of Sh.4.50.

Determine the % return on investment. (4 marks)

4. a) Explain how the savings and credit co-operative societies mobilise savings and aid investments. (7 marks)

b) How do the Non-Governmental organisations (NGO’s) that extend credit to informal businesses and small traders ensure that the level of credit default is low? (6 marks)

c) Would you consider it prudent to convert savings and credit co-operative societies and the institutions which are used by Non-Governmental Organisations in (b) above into banks? (5 marks)

(Total: 18 marks)