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[Solved] MGT201 Assignment 1 Spring 2020  

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admin
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24/07/2020 12:24 am  

MGT201 Financial Management Assignment 1 Solution & Discussion Spring 2020


MGT201 Assignment 1 Solution idea:

 

 

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MGT201 Assignment 1 Solution Spring 2020 (36 downloads)

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admin
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29/07/2020 9:33 pm  

MGT201 Financial Management Assignment 1 Solution & Discussion Spring 2020


MGT201 Assignment 1 Solution idea:

Another Solution

Credit: Muhammad Aaqib Saleem

 

 

1-Calculation of Intrinsic Value of Bond:

Intrinsic value of bond is the present value of all expected future cash flows , discounted at the appropriate discount rate.

Par value of bond= Rs.1,000                                        Coupon Rate=12%   

 Market interest rate=i= 14% Semi annually =14%2 =7%

Period=n=5years x2=10

Coupon Value= Par value of bond X Coupon rate= Rs.1000X12%= Rs.120

Intrinsic value of bond = Coupon value 1/ (1+i)1+  Coupon value 2/ (1+i)2 +……+  Coupon value n/ (1+i)n

= Rs.120/(1+.07)1 + Rs.120/(1+.07)2+ Rs.120/(1+.07)3+ Rs.120/(1+.07)4+ Rs.120/(1+.07)5+ Rs.120/(1+.07)6+ Rs.120/(1+.07)7+ Rs.120/(1+.07)8+ Rs.120/(1+.07)9+ Rs.120/(1+.07)10

= Rs.120/1+.07 + Rs.120/1.1449+ Rs.120/1.225+ Rs.120/1.3108+ Rs.120/1.4026+ Rs.120/1.5007+ Rs.120/1.6058+ Rs.120/(.7182+ Rs.120/1.8385+ Rs.120/1+9671

=Rs.112.15+Rs.104.81+Rs.97.96+Rs.Rs.91.55+Rs.85.56+Rs.79.96+Rs.74.73+Rs.69.84+Rs.65.27+Rs.61

=Rs.842.83

 

2-Calculation of Intrinsic Value of Stock Today:

Dividend year 1=Div 1=Rs.6                                                     Dividend year 2=Div 1=Rs.7

Rate of Return:Re=14% per annum                  Most recent paid dividend= d=Rs.5

 

Intrinsic Value of Stock Today: Dividend year 1+ Dividend year 2+ Dividend till perpetuity+

Net recent dividend year 2 + Net recent dividend year 1

=Rs. 6/(1.14)^1+Rs.7/(1.14)^2+Rs. 5/(0.14)+ Rs. -5/(1.14)^1+ Rs. -5/(1.14)^2

=Rs. 6/1.14+Rs.7/1.2996+Rs. 5/0.14+ Rs. -5/1.14+ Rs. -5/1.2996

=Rs. 5.263+ Rs. 5.386+Rs. 35.714+Rs. -4.386-Rs.-3.847

=Rs.38.13

 

Determination Over Value or Under Value:

 

Category

Calculated Values

Market Value

Over-Valued

%age Over-Valued

Bond

Rs.842.83

Rs.940

Rs.97.17

10.34%

Share

Rs.38.13

Rs.54

15.87

29.39%

 

Conclusion:-

  1. Above calculation shows that both bond and share of stocks are over-valued however shares are more over-valued than bonds.

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