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!!~~++MGT 201 - Financial Management Assignment No. 2 has been announced DUE DATE: JULY 11, 2014!!~~++~~

SPRING 2014
FINANCIAL MANAGEMENT (MGT201)
ASSIGNMENT 02
DUE DATE: JULY 11, 2014 MARKS: 10 Learning Objective
 To understand the concept and estimation of bond valuation.
 To recognize the evaluation and application of stock betas & risk, SML and return
Learning Outcomes
After attempting this assignment, the students would be able to determine:
 Intrinsic value of a bond listed at any stock exchange working in Pakistan.
 Stock betas, measure risk and draw SML using market data of KSE.
Case
Assume that recently, you have been appointed as assistant to the financial analyst of the company named: XYZ and management of the company is now expected you to do some required calculations in the need to make few important financial decisions. Company formerly issued few common stocks and bond with which the related information is as given below:
A 10 years bond of par value Rs.8,000/- was issued, with annual coupon interest rate of 11.5%. Required rate of return on such bonds is 9% p.a.
Stock A was issued by the company, for which they have paid Rs.1.25 per stock as annual dividend, this year. Company’s earnings and divided is expected to grow at 6.5% in a year ahead.
Stock B was issued by the company, for which the required rate of return is 17%; beta is 1.5 while the market return is 15.5%.
Stock C was issued by the company, for which the risk free rate of return is 11.5%; market risk premium is 2.3% and required rate of return is 16.2%.
Required
1. Keeping in view the given information, calculate the value of the bond.
[4 marks]
2. Calculate and comment, how the value of the bond will be affected, if the required rate of return on bond is increased up to 13 %. [3 marks]
3. Using SML equation, you need to find out the risk free rate of return for stock B. Also interpret the result of stock B for investment purpose. [3 marks]
Note: Show formulas, complete calculation/ working along with decision comments to avoid any marks deduction.
IMPORTANT:
24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. 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/ SOLUTION GUIDELINES/ SPECIAL INSTRUCTIONS
“DO YOUR WORK CLEAN & COMPLETE”
OTHER IMPORTANT INSTRUCTIONS:
DEADLINE:
 Make sure to upload the solution file before the due date on VULMS.
 Any submission made via email after the due date will not be accepted.
FORMATTING GUIDELINES:
 Use the font style “Times New Roman” or “Arial” and font size “12”.
 It is advised to compose your document in MS-Word format.
 You may also compose your assignment in Open Office format.
 Use black and blue font colors only.
REFERENCING GUIDELINES:
 Use APA style for referencing and citation. For guidance search “APA reference style” in Google and read various websites containing information for better understanding or visit http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html
RULES FOR MARKING
Please note that your assignment will not be graded or graded as Zero (0), if:
 It is submitted after the due date.
 The file you uploaded does not open or is corrupt.
 It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.
 It is cheated or copied from other students, internet, books, journals etc.
Note related to load shedding: Please be proactive
Dear students!
As you know that Post Mid-Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments or GDBs.

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Replies to This Discussion

Very Calculative

to start krn na koi .......... mera finance to already bht week h 

week nai hota weak hota hy sis 

amir khan kch tu kaho kya howa stock c q diya hai aiwen jab us ka kch pocha hi nahi??

Brother

In Stock C you will see Risk Free Rate. It is required in SML equation.

hmm right it is risk free rate we need it yar how can i forget it ..good amir ..

Amir yar wese tum ne wo corporate finance main du pont identity wala mcq acha solve kia good..

متشکرم

ramazan ki waja se study ni hu rhe abe tk assginment ko me ne parha he nai he

kkoi he jo isko easy wrding me bta dye

SML Linear Equation for the Required Return of any Stock A:
rA = rRF + (rM - rRF ) β A .

yes stock b ka risk free rate isi formula ko mathematically adjust karke bane ga so adjust karen is formula ko to calculate risk free rate...

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