Semester “Spring 2012”
Financial Management (MGT201)
Assignment No. 02 Marks: 30
Suppose Mr. Zafar, (a habitual investor in stocks) has currently maintained a portfolio as
Stock Companies Beta Returns
A Lucky Petroleum 0.95 7.2% 0.12
B MJ Corporation 1.25 14.6% 0.15
C Venus Industries 1.15 9.3% 0.10
His whole investment comprises of 10 million rupees, from which 32 percent was invested
in stock A and the rest was invested equally in stock B and C.
Risk and return specifications of this portfolio are as follows:
Standard deviation 0.09
* The correlation between AB is 0.75; AC is 0.35 and BC is -0.5*.
Now, Mr. Zafar is interested to extract his investment from stock C to further invest in
some other stock. For this purpose he is looking forward to investigate about two of the
potential opportunities prevailing in the market i.e:
I. Ghazi Company’s share (stock D) is available in the KSE at Rs. 40/- each. Company is paying
Rs. 5.6/- as dividend on each share with expected growth rate of 7.5%. Face Value of the share is
Rs.12/-. Risk free rate of return is 11%. Rate of return as per KSE Index is 14%; return on this
stock seems bit volatile as reflected by its beta i.e. 1.9.
II. Zamin Corporation’s share (stock E) is also available in KSE. Upon investigating its Price
Earnings (P/E) ratio, Mr. Zafar came to know that investors are willing to pay five rupees to
earn one rupee and industry average of P/E ratio is 6.5. Moreover, that the Company is paying
dividend of Rs. 28.5 per share which represents 30% of its earnings (EPS = Rs. 95) and the
dividend is expected to grow at 10% per year for foreseeable future. Mr. Zafar’s required rate of
return for this investment is 17%; while, the stock beta is 1.4.
1) You need to find out the intrinsic value of stock D of Ghazi Company through using SML
equation. (6 marks)
2) With the help of given information, you need to calculate the intrinsic value of Zamin
Corporation’s share (stock E)? (5 marks)
3) Based on intrinsic values and information of both stocks (D and E), you need to recommend
that which investment opportunity Mr. Zafar should opt? Give logical justification of your
recommendation. (3 marks)
4) Calculate portfolio’s beta, return, variance and standard deviation after replacing stock C with
new recommended stock that is assumed to have standard deviation of 0.11. The correlation
between stocks is supposed to be AD 0 .25; AE 0.3; BD 0.5 & BE is 0.7. (13 marks)
5) Comment and justify that whether new portfolio is better or the previous one with respect to
risk and return context? (3 marks)
(Show complete formulas, calculation/ working along with
decision comments as they carry marks)
1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 1 to lecture no.27 and reading handouts as well
as recommended text book).
2. Video lectures can be downloaded for free from www.youtube.com/vu.
Opening Date and Time June 04, 2012 At 12:01 A.M. (Mid-Night)
Due Date and Time June 07, 2012 At 11:59 P.M. (Mid-Night)
Note: Only in the case of Assignment, 24 Hrs extra / grace period after the above
mentioned 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 be treated as final to
avoid any inconvenience.
Please read the following instructions carefully before attempting the assignment
· 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.
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· It is advised to compose your document in MS-Word 2003.
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· Show complete formulas, calculation/ working along with decision comments
as they carry marks
· Every student will work individually and has to write in the form of an
· Give the answer according to question, there will be negative marking for
· For acquiring the relevant knowledge don’t rely only on handouts but watch
the video lectures and use other reference/ recommended books also.
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Please Discuss here about this assignment.Thanks
plzzzzz upload the complete solution
yr koi idea do assignment ka
plzz koi to idea do is assignment ka
idea send kro na discuss kya karain hm :)
please somebody give the solution..... please :(
plzzzzzzzzz koi upload kar de last date hai subho kindly
kal share karoon ga ...
plzzz kashif upload the solution today is last date
plzzzzzzzzzz upload the complete solution
Its quite difficult, I think no one will be working on it.
koi tu post kar plzzz kisi ko nahi ati