Re: ::: vuaskari.com ::: fin-630 assignment solution

Fin 630-ass 2 sollution -2013

REQUIRED

While considering all of the above mentioned information, Mr. Prudent is encouraging you to answer the following questions to help him make buy decision:

 

Face Value/Par Value             = Rs. 1000

Coupon Rate:              = 8%

Bond Life:                    =30years

Inflation Rate:             =5% and 6%

 

a) What would be the bond's value if Mr. Prudent desires a required return of 6%, 8%, and 10%? Would each of these computations carry any discount, premium or the face value?

 

Formula

Po=C{1-(1+r)^-t/r}+F/(1+R)^t

Po= present value/ intrinsic value

C= Coupon Payments which make by the security=par value * Coupon rate

R= required rate of return

T= Maturity Time of the Bond

 

 

Coupon Payment= par value * Coupon rate

=1000*8%=80

 

At 6% required rate of return

=80[1-(1+0.06/)^-25/ 0.06]+ 1000/ (1+0.06) ^25

=80(12.783)+232.998

=1022.668+232.998

=1255.66 Premium Value Bond

 

At 8% required rate of return

=80[1-(1+0.08/)^-25/ 0.08]+ 1000/ (1+0.08) ^25

=80(10.68)+146.017

=853.982+146.017

=1000 Face Value Bond

As coupon rate and required rate are same

 

At 10% required rate of return

=80[1-(1+0.1/)^-25/ 0.1]+ 1000/ (1+0.1) ^25

=80(9.077)+232.998

=726.163+92.295

=818.459 Discounted Value Bond

 

b) In which of the above cases, Mr. Prudent should buy this bond and why?

 

For every computation carries the discount, premium or the face value.

·         6% required rate of return carry the premium value of the bond.

·         8% required rate of return carry the face value of the bond.

·         10% required rate of return carry the discounted value of the bond.

 

Mr. Prudent will choose the premium bond because of

1. Premium bonds hold market value better than others
2. Premium bonds provide better streams of income
3. Discounted bonds loses its value but premium maintain constant and less chance of loss

 

c) Analyze the relationship between required rate of return and bond's intrinsic value as per the following graph relating to a 6% bond issued by the company 7 years earlier keeping in view the maturity risk.

 

·         Required rate of return of 15 years bond increases from 6% to 10% but decreasing the face value and bond value respectively till 700.

·         But in the current situation 25 years bond provides 800 at 10% required rate of return

·         This is happened due to time aspect in the bond which shows the more stability than the above.

 

d) What would be the capital gain or loss, if Mr. Prudent purchases the bond at call price while taking into account 1% increase in inflation and sells this bond after 5 years from now?

 

Bond Face Value: Rs. 1000

Callable Price = Rs. 1150

Market Price = Rs. 980

Maturity Period till Call = 5 years

Coupon Rate = 8%

Required Rate of Return = 6%

 

= 80[1-(1+0.06/)^-5/ 0.06]+ 1000/ (1+0.06) ^5

= 1196.336

 

Capital gain yield = P1-Po/Po

Capital gain yield = 1196.336-980/980

Capital gain yield = 22.07%

 

e) What would be his yield to maturity on this bond at today's purchase price of Rs. 980 and holding it till its maturity?

 

Bond value= 1000

Market value= 980

Maturity= 25 years

Coupon rate = 8%

YTM=?

 

Put the values in the formula than we obtain…

980=80[1-(1+YTM/) ^-25/ YTM] + 1000/ (1+YTM) ^25

By using trial and error we get

YTM=8.18%

On Fri, Feb 1, 2013 at 8:20 AM, ~*~ Sister ~*~ <girl.decentgirl.decent@gmail.com> wrote:

g beshaq...

1.      What is the purpose of Ahmad's study? 2
Solution : The purpose of Ahmad's study is explanatory research

2. What unit of analysis should Ahmad take? 4
Solution : Ahmad will take dyads unit of analysis

3. Propose time dimension for Ahmad's study. 3
Solution : Time dimension for Ahmad's study is cross sectional.

4. What is the research environment in Ahmad's study? 3
Solution : The research environment in Ahmad's study are field experiments/
5. What data collection tool will be the most appropriate for Ahmad's 
study? 4
Solution : Observation tools will be the most appropriate for Ahmad's 
study

6. Which sampling technique will be the most appropriate for Ahmad's 
research? 4
Solution : Case study sampling technique will be the most appropriate for Ahmad's 
research

On Fri, Feb 1, 2013 at 6:21 PM, sohail sohail <mc100207126@gmail.com> wrote:

SIRF ALLAH SI MANGO

On Fri, Feb 1, 2013 at 4:27 PM, javed iqbal <ijaved666@gmail.com> wrote:

Dear All
Aslam-0-alikm

Please send me STA_630 Assignment No.02 Solution

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