@Fouzia-Suleman said in MGT201 Assignment 1 Solution and Discussion: IA new investor wants to add bonds and shares in his portfolio and he has two options available with the following information. I. Company ABC issued a five-year bond with face value of Rs.1,000. The bond offers 12% semiannual coupon payment. The market interest rate for such type of investment is 14% per annum while current market price of bond is Rs.940. II. The stock of company XYZ is being sold at Rs.54 per share while the forecasted dividend is Rs.6 for first year and Rs.7 for the second year. The price of the stock after year 2 is expected to be Rs.55. The Company paid most recent dividend as Rs.5 whereas the rate of return for such type of investment is 14% per annum. You are required to help the investor in valuation of both investment options by calculating: Intrinsic value of the bond. (8 marks) Intrinsic Value of stock today. (8 marks) Identify either bond and stocks are overvalued or undervalued. Justify your answer with proper calculation and reasoning. (4 Marks) Assignment#01 Marks 20 Intrinsic value of the bond Po=Σ Ct/ (1+r/2)n + Par/1+r/2)n C = coupon payments = 100012/100 = 120/2 = Rs.60 No. of coupon payments = 52 = 10 (semi-annual) Required rate of return: 14/2 = 7% (semiannual) = 60Annuity factor (7%,10) + 1,000 * PV factor (7%, 10) = 60{1-1/ (1+0.14/2) 52) / (0.14/2)} + 1,000/ (1+ (0.14/2)5*2 = 60{1-1/ (1+0.07)10 /0.07} + 1,000/ (1+0.07)10 = 421.41+ 508.35 = Rs. 929.76 Intrinsic value of the stock Do = Current dividend = Rs.5 D1 = Rs.6 D2 = Rs.7 Value of Stock: Po = D1/ (1+i)n + D2/ (1+i)n + P2/(1+i)n Po = 6/ (1.14)1+ 7/ (1.14)2 + 55/ (1.14)2 Po = 5.26+5.39+42.32 Po = Rs.52.97 Bond and Stock valuation Solution Overvaluation or undervaluation of securities For Bond Bond is overvalued because market price is more than intrinsic value i.e. Market price > Intrinsic value 940 > 929.76 For Stock Stick is also overvalued as its market price is more than its intrinsic value i.e. Market price > Intrinsic value 54 > 52.97

please can you tell me about grand quiz just hint please

@Rabeiea-Aslam said in MGT201 GDB 1 Solution and Discussion: Option 1: Investing Rs. 100,000 at 12% interest rate compounded semiannually for 10 years Option 2: Depositing half of investment amount in a saving account for 10 years that pays 10 % interest rate compounded annually and investing remaining half amount at 12% interest rate compounded annually for 10 years. Calculation of both Option Option 1: Semi Annual Yearly Compounding FV = PV x (1 + i/2) 2n FV = 100,000 x (1 + 0.12/2) 2 x 10 FV = 320713.5 Option 2: FV= PV (1 + i) n FV = 50,000 (1+0.12) 10 FV = 155292.4 Option 1 is best for Mr. Ahmad because the value of FV is grater than Option 2

Idea Solution:

Under “cliental effect”, ________ investors invest in high dividend stocks while __________investors invest in low dividend stocks. MGT201 Income, growth

@zareen

Why companies invest in projects with negative NPV? MGT201 Because there is hidden value in each project Because there is hidden value in each project bolded text At the termination of project, which of the following needs to be considered relating to project assets? Salvage value Book value Intrinsic value Fair value When a bond is sold at discount? MGT201 The coupon rate is greater than the current yield and the current yield is greater than yield to maturity Which of the followings is (are) type (s) of problems associated with Capital Rationing? MGT201 Size Difference of cash flows If dividends of preferred shareholders remain constant and required return decreases then what will be impact on present value of preferred shares? MGT201 Present Value of preferred share will decrease If Net Present Value technique is used, what is the ranking criterion for projects? MGT201 Choose the highest NPV  Which one of the followings is type of problem associated with Capital Rationing? MGT201 Indifferent size of cash flows Company A is analyzing some projects based on payback period amongst which one project will be selected. In your opinion which project is best for the company? MGT201 Project S with pay back period of 4.5 years The value of the bond is NOT directly tied to the value of which of the following assets? MGT201 Real assets of the business Real assets of the business Liquid assets of the business Fixed assets of the business Lon term assets of the business A bond has 4.3% interest yield and 16.9% Yield to Maturity. What would Capital Gains of the bond? MGT201 12.6% Capital budgeting techniques help management in _______. MGT201 Assessing financial viability of projects What is difference between shares and bonds? MGT201 Bonds are representing ownership whereas shares are not Shares are representing ownership whereas bonds are not Shares and bonds both represent equity Shares and bond both represent liabilities