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# MGT411 Assignment # 2 Solution & Discussion Due Date:07-06-2012

SEMESTER SPRING 2012
MGT411 (Money and Banking)
Assignment No. 2
Due Date: June 07, 2012 Marks: 30
Question No. 1 (Marks: 8+8+4 =20)
Topic: Measuring Risk
Learning Objectives:
To enable the students to measure the risk associated with various kinds of investments
so that they can take the right decision while choosing among the various kinds of
investment opportunities.
Learning Outcomes:
Students will be able to take right decision regarding their investment opportunities
after careful analysis of the risk associated with various investment opportunities.
The Case:
Mr. Graduate is planning to make investment in the Karachi Stock Exchange after
graduating from Business University. After a careful analysis of various stocks, he
selected a stock of the company ABC in which he is willing to invest. The current
market price of ABC stock is Rs.200. As this investment is very risky, so he
contacted various experts in the market in order to take their suggestion. Based on
predictions of financial experts, there are following three scenarios relating to his
investment after two months:
1. In case of high growth in the economy, there are 30% chances that the price
of the stock will increase and will be at Rs.350.
2. In case of normal growth in the economy, there are 60% chances that the
price of the stock will remain at Rs.250.
3. In case of recession, there are 10% chances that the prices of the stock will
decrease to Rs.150.
He is unable to further calculate expected value, variance and standard deviation in
order to assess the risk associated with this investment.
Required:
Keeping in view the given scenario, you are required to help Mr. Graduate in
calculating the following:
a. Expected value
b. Variance.
c. Standard deviation.
Question No. 2 (Marks: 10)
Topic: Valuing Stock
Learning Objectives
The objective of this assignment is to enable the students to value a stock in which they
are going to make investment so that they may be able to determine the just price they
should pay for a stock.
Learning Outcomes
Students will be able to determine the just prices of the stocks being traded in the stock
market. They will be able to determine whether a stock in overvalued or undervalued
and can take investment decision accordingly.
The Case:
Assume that you are going to purchase the stock of a company ABC. After careful
analysis you have forecasted that firm’s dividends should grow at 8% on average in
the foreseeable future. The last divided the company paid was Rs.4.
Required:
Keeping in view the above data, you are required to compute the current price of the
stock assuming the required return is 18%.
Note:
Only in the case of Assignment, 24 hours extra / grace period after the due date is
usually available to overcome uploading difficulties which may be faced by the students
on last date. This extra time should only be used to meet the emergencies and above
mentioned due dates should always be treated as final to avoid any inconvenience.
Important Instructions:
 Make sure that you upload the solution file before the due date. No assignment
will be accepted through e-mail once the solution has been uploaded by the
instructor.
Formatting guidelines:
 Use the font style “Times New Roman”/ “Arial” and font size “12”.
 Use black and blue font colors only.
Solution guidelines:
 Every student will work individually and has to write in the form of an analytical
assignment.
 Give the answer according to question.
 For acquiring the relevant knowledge don’t rely only on handouts but watch the
video lectures and use other reference books also.
Rules for Marking
 It has been submitted after due date
 The file you uploaded does not open or is corrupt
 It is in any format other than .doc (MS. Word)
It is cheated or copied from other students, internet, books, journals etc…
Important Note for those courses where calculations and graphs are
required.
 Calculate to the point where calculation is being required. NO need to write irrelevant
material or extra interpretation.
 Draw diagrams by yourself. Do NOT copy from any source. NO need to write
irrelevant material.

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### Replies to This Discussion

you are required to compute the current price of the stock assuming the required return is 18%.

so use formula

p = Div/(i-g)

Shahzad Sadiq please share the all formula which one you apply for all portion of the requirment, please me not solve for single one requirement........... Thanks me does't mean for share all solution just Formula

Yar ager kise ne assignment bana li ha to pleas up lod kr do thanks

Expected Value = ∑ Payoff x Probability

Variance = ∑ Probability x (Payoff – Expected Value)2

Standard Deviation = square root of variance

Question 2

D1 = D(1 + g)

Current Price = P = D1 / (i – g)

Sister........me nay tau issi formula say bana kay submit kar di hai....:(

kiounkay mujhay 7 assignments banani hain.....:(

Thanks a lot shahzad bhai for post formuls but me not concept clear ap naa 1st assignment ka b solution upload karvaya tha i got 20/20 so please main na lecture b suna Yeh assignment Lesson# 11 sa lea gaye hai but mere Ans app sa over all different aa rahy hai ap Just idea he post kar dain apnay wala bake changing wagara toh banda kar he lata so please Shahzad Bhai mere Abi or b assignment 4 banane hai so please es main app help kar dain  Request for it app apna idea hai post kar dain

Lain brother....agar aap ko kahin ghalat lagay tau bata dijiaye ga...waisay me submit kar chuka hoon........:(

 Scenarios Probability Payoff Payoff x Probability 1 0.30 Rs. 350 105 2 0.60 Rs. 250 150 3 0.10 Rs. 150 15

Expected value= 105 + 150 + 15

= 270

Variance = = 0.30(350 – 270)2 + 0.60(250 – 270)2 + 0.10(150 – 270)2

=3600

Standard deviation = square root of 3600

= 60

=

Please post the idea solution  of second question.

yar Koi Sahi Solution hi upload er daye........

bhai ap ny jo money banking ka solution send kia hai kia wo same as send kerna hai ya separatetly.

 Probability Payoff Payoff x Probability 1 0.30 Rs. 350 105 2 0.60 Rs. 250 150 3 0.10 Rs. 150 15

Expected value= 105 + 150 + 15

= 270

Variance = = 0.30(350 – 270)2 + 0.60(250 – 270)2 + 0.10(150 – 270)2

=3600

Standard deviation = square root of 3600

= 60

bhai same as it submit kerni

DIV1 = DiV(1 + g)

= 4(1+0.08)

=4.32

bhai jo solution ap ny money banking ka send kia hai kia as it is send kerna hai ya separetly.

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