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Valuation of Security

The document contains 13 valuation problems related to bonds, stocks, and other securities. It asks the reader to calculate values, yields, and prices based on given interest rates, growth rates, coupon rates, dividends, time periods, tax rates, and required rates of return. The problems cover topics like bond valuation, dividend discount models, and yield to maturity calculations.

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Ashwin Krishna Prasad
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120 views

Valuation of Security

The document contains 13 valuation problems related to bonds, stocks, and other securities. It asks the reader to calculate values, yields, and prices based on given interest rates, growth rates, coupon rates, dividends, time periods, tax rates, and required rates of return. The problems cover topics like bond valuation, dividend discount models, and yield to maturity calculations.

Uploaded by

Ashwin Krishna Prasad
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Valuation of security : 1) The face value of 10 year 10% bond ( with 10 coupon rate interest ) is Rs 1,000 .

Assuming 12 % required rate of return of investors , compute the value of the bond. What price would the investor be willing to pay , if the interest is payable annually.

2) Assume i) Rs.100 par value ii)8% coupon rate of interest and iii)10 years remaining to maturity date; If interest rate is paid annually find the value of bond when required rate of return is i)7% ii) 8 % and iii) 9% indicate the nature of selling the bond either at discount/ premium/par 3)The share of a certain stock paid a dividend of Rs.2.00 last year (D0=Rs.2.00) The dividend is expected to grow at a constant rate of 6 percent rate in the future . The required rate of return on this stock is considered to be 12 percent . How much the stock should sell right now ? Assuming that the expected growth rate and required rate of return remain the same at what price should the stock sell 2 years hence?

4) The bonds of the premier company ltd are currently selling for Rs.10,800 Assuming i) coupon rate of interest 10 % ii) par value Rs.10,000 iii) years to maturity 10 years iv) annual payment . Compute the YTM

5) IDBI, in its issue of Flexibonds-3 offered growing interest bond . The interest will be paid to the investors every year at the rates given below and the minimum deposit is Rs.5,000 . Calculate the yield to Maturity (YTM) Interest Per Annum Year 1 Year 2 Year 3 Year 4 Year 5 10.5 11.00 12.50 15.25 18.00

6)The market price of Rs.1,000 par value bond carrying a coupon rate of 14 percent and maturing after 5 years in Rs.1050 . What is the yield to maturity (YTM) on this bond ? What is approximate YTM? What will be the realised yield to maturity if the re- investment rate 12%? 7)A company is offering a bond with the following features Issue price = Rs.100 Coupon rate( annual payment) = 12% Maturity = 5 years If the bond is to be redeemed at par and the investor faces a 30% tax on income and a 10% capital gains tax , what is the effective yield to maturity for the investor ? 8)A Rs 100 par value bond bears a coupon rate of 12 percent and matures after 6 years .Interest is payable semi annually. Compute the value of the bond if the required rate of return is 16 percent , compounded semi annually. 9)The per share dividend of premier investments Ltd (PIL) remains constant indefinitely at Rs.10 Assuming a required rate of return of 16 , compute the value of Equity shares 10)An investor is creating the purchase of a share of ABC ltd at the beginning of the year .If the required rate of return is 10 per cent , the year ended expected dividend is Rs.4 and year end price is expected to be Rs.26, compute the value of the equity share 11)The premier investments ltd (PIL) had paid the following dividends per share Assuming a 16 % required rate of return, and Rs.3 per share dividend in year 7. compute the value of the shares of PIL year Dividend per share Rs.

6 5 4 3 2 1

2.80 2.58 2.40 2.24 2.10 2.00

12)XYZ ltd paid a dividend of Rs 5 per share at the end of the year . It is expected to grow by 10 percent each year for the next 4 years . The market price of the shares is expected to be Rs.70 at the end of 4 years .Assuming 12%

required rate of return of investors , at what price should the shares of XYZ ltd sell ? 13)The most recent year annual dividend paid by the premier investments Ltd (PIL) is Rs.3 per share . An annual increase of 10 per cent g1is expected over three years.At end of the three year the dividend is expected to slow down 5%. Assuming 15 % required rate of return. Compute the value of shares

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