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Semester “Fall 2010”

“Money & Banking (MGT411)”

Assignment No. 01 Marks: 15

Important Tips

1. This Assignment can be best attempted from the knowledge acquired after

watching video lecture no. 1 to lecture no 13 and reading handouts as well as

recommended text book).

2. Video lectures can be downloaded for free from www.youtube.com/vu .

Schedule

Opening Date and Time November 04 , 2010 At 12:01 A.M. (Mid-Night)

Due Date and Time November 10 , 2010 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 always be treated as final to avoid any inconvenience.

Question no 1

Part (a)

On 01 January 2010 JS Group want to issue bonds in the capital market having

face value Rs.1, 000 with coupon rate of 10% (semi annually and 15 years

maturity). Investor required rate of return in this scenario is 12%.

You are being the student of finance know the worth of fundamental methods of

valuation; therefore you are required to calculate the present value of the bond by

utilizing the fundamental methods.

Part (b)

The bond of JS Group is traded in the Karachi Stock exchange for Rs.950. The

par value of the bond is Rs.1, 000. The coupon rate is fixed at 12 % paid annually.

This bond will be matured after 03 year. What will be (YTM) of this bond?

Part (c)

EFU, an insurance company, wants to plan a new service to its policy holders.

During the meeting of executives, CEO offered a plan of house insurance. The

summary of estimated cash flows which were discussed in that meeting is:

· This project will need Rs.05 million as initial investment

· In the first year company will receive Rs.02 million as premium from the

policy holders.

· In second year, company expect to receive Rs.2.5 millions as premium

· In third year company estimated that it will have to receive only Rs. 01

million because there will be a earth quack in that period, as probability of

having earth quack is more than 80% as predicted by geologists.

· In the fourth year the company estimated to get Rs.1.5 million after clearing

the insurance claims of the policy holders.

· In fifth year they expect to receive only Rs. 0.5 million

Calculate the IRR of above mentioned plan by trail and error method?

Important Instructions:

Please read the following instructions carefully before attempting the assignment solution.

Deadline:

· 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” and font size “12”.

· It is advised t compose your document in MS-Word 2003.

· 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, there will be negative marking

for irrelevant material.

· For acquiring the relevant knowledge don’t rely only on handouts but

watch the video lectures and use other reference books also.

· provide all calculation only answer will not be appreciated

Rules for Marking

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Attachments:

Replies to This Discussion

SOLUTION:


Part B Solution

If we put 14.1% as YTM then answer must be same…

PV = 950 = 120 / (1+ rD) + 120 / (1+rD)2 + 120 / (1+rD)3 + 1,000 / (1+rD)3
PV = 950 = 120 / (1+ 14.1%) + 120 / (1+14.1%)2 + 1120 / (1+14.1%)3
PV = 950 = 120 / (1+ 0.141) + 120 / (1+0.141%)2 + 1120 / (1+0.141)3
PV = 950 = 120 / (1.141) + 120 / (1.141%)2 + 1120 / (1.141)3
PV = 950 =105+ 92 + 753
PV = 950 = 950
dis iz corect.but the sol provided by mr tarik atleast he should check the sol before putting here, part b in his sol is wrong,coupon rate is 120 the formula in his sol file of coupn rate is rong,so plz correct it
ytm 14.1 is correct
120/(1.141)2 = 92 ?????????????????
1120/(1.141)3 = 753 ???????

can any explan me plz
MGT411 Assignment#01 idea solution
see the attached file pls
Attachments:
Dear fellows
HERE IS ANOTHER IDEA SOLUTION.
It is requested that please don’t copy paste. And also if you find some thing wrong so please also inform me,

Thanks for your co operation.

Lucky.jan077@gmail.com
Mc100200328@vu.edu.pk
Attachments:
bro ur part c is wrong, in IRR WE TAKE NPV=0 AND THEN WE CHK BY PUTTING VARIOUS IRR IN NPV EQUATION WHOSE ANSWER WILL BE EQUAL TO ZERO OR NEAR TO IT,NOT MORE THEN ZERO
SEE PAGE 44 IN FINANCIAL MANAGMENT NOTES
AND PLEASE ANYONE PROVIDE US CORRECT N CONFIDENT SOLUTION.PLZZZZZZZZZ...ITS GETTING CONFUSING NOW
dear!

its also correct.it is modified shape of that formula.
it s also same formula.and correct.chek the financial mgm.i have also chek this formula from FM.
U CAN SOLVE IT IN THAT WAY ALSO.U WILL FIND ALSO THE SAME ANSWER
THANKS FOR CONCERN
ok i try it lets c
dear saima i also confuse to make this assignment and i also not sure about my assignment if you made money & banking assignment can you send me please
my mailing address is
naumananwar9@gmail.com

i m waiting your good response
and why UR PART A ANSWER IS DIFFRENT FROM MR TARIK SOL??PLZ MAKE IT CLEAR COZ M GETTING TOO MUCH CONFUSED
AND M ALSO NOT SURE ABT UR PART A....
deAR!
FOR CONFRM UR ANSWER PLS VISIT THIS SITE ALSO,ITS A CALCULATOR FOR CALCULATING PRESENT VALUE.
HOPE THIS WILL HELP FULL FOR U.
http://www.calculator.com/calcs/bondcalc.html
IN THIS YOU CAN PUT THE VALUES AND FIND UR REQUIRED VALUE.

THANKS

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