MGT201 - Financial Management
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Re: MGT201 Assignment 1 Solution and Discussion
Assignment #01Marks =20
Risk, Return and Investment Decisions Investment decisions are supported by various factors including investor choice of risk appetite, return on investment and most important the market situation that is backed by supply and demand forces. The supply and demand impact is reflected in the market price of securities and guide investors to take a rational decision.Along with market forces, company specific information is also helpful in determining the fair price of an investment. Rational investor s consider both market and company specific information to choose among different investment options. Following information is available for the three stock and you have to choose the two from the three securities to construct a portfolio.
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Required:Calculate required rate of return for three stock using SML Equation,if risk free rate of return is 10%.Calculate Fair value of three stocks using Gordon Growth Model.Based on fair price calculation, identify whether the stocks are undervalued or overvalued, justify your answer with reasoning.Considering the above calculations,if you want to construct the portfolio of two stock from the above mentioned three stock., which two stocks you will add in your portfolio and why?NOTE: Formula and complete working is mandatory in each part, provide complete calculations in order to avoid marks deduction.IMPORTANT NOTE: 24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. 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.
IMPORTANT INSTRUCTIONS/ SOLUTION GUIDELINES/ SPECIAL INSTRUCTIONS DEADLINE:• Make sure to upload the solution file before the due date on VULMS• Any submission made via email after the due date will not be accepted FORMATTING GUIDELINES:• Use the font style “Times NewRoman” or “Arial” and font size “12” • It is advised to compose your document in MS-Word format • You may also compose your assignment in Open Office format • Use black and blue font coloronly RULES FOR MARKING Please note that your assignment will not be graded or graded as Zero (0), if:• It is submitted after the due date.• The file you uploaded does not open or is corrupt.• It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc. • Not submitted as per given format • It is cheated or copied from other students, internet, books, journals etc. Note related to load shedding:Dear students, As you know that semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments or GDBs. Best of Luck!!
Re: MGT201 GDB 1 Solution and Discussion
Graded Discussion Board Fall 2020
Financial Management (MGT201)
Dear Students,
This is to inform that Graded Discussion Board (GDB) No. 01 will be opened on December 03, 2020 for discussion and last date for posting your discussion will be December 8, 2020. This Graded Discussion Board will be on the topic of “Financial Forecasting and Financial Planning”
Short Demo:
If you want to know how to attempt a GDB on VULMS, watch the following short demo on VU Facebook page.
Click here to see demo
Note:
For acquiring the relevant knowledge, do not rely only on handouts but also watch the course video lectures and read additional material available online or in any other mode.
Important Instructions:
Your discussion must be based on logical facts.
The GDB will open and close on above specified date and time. Please note that no grace day or extra time will be given for posting comments on GDB.
Use the font style “Times New Roman” and font size “12”.
Your answer should be relevant to the topic i.e. clear and concise.
Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
You should post your answer on the Graded Discussion Board (GDB), not on the Moderated Discussion Board (MDB). Both will run parallel to each other during the time specified above. Therefore, due care will be needed.
Obnoxious or ignoble answer should be strictly avoided.
You cannot participate in the discussion after the due date via email.
Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.
For planning your semester activities in an organized manner, you are advised to view schedule of upcoming Assignments, Quizzes and GDBs in the overview tab of the course website on VU-LMS.
Best of Luck!!
Re: MGT201 Assignment 1 Solution and Discussion
Assignment#01
Marks 20
Stock valuation and Bond Valuation
Bonds and stocks are two primary securities traded on approximately all stock exchanges of the world because of its potential, reliability, and better trade volume. Besides all these pro, risk taking behavior of different investors and the features associated with each class of security are vital ones that attract investors for earning a handsome return. Stocks are considered more risky with higher return, whereas bonds accounted low risk investment with guaranteed return. However, most investors formulate a portfolio of their investment with combination of bonds and stocks for optimal return with a lesser degree of risk due to diversification edge involved in it.
The formulation of such portfolio lies upon market factors and company specific factors. The optimal return only can be achieved by better judgment of both factors and evaluation of intrinsic prices of securities by some fundamental methods.
Required:
A 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)
NOTE: Formula and complete working is mandatory in each part, provide complete
calculations in order to avoid marks deduction.
IMPORTANT NOTE:
24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. 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.
IMPORTANT INSTRUCTIONS/ SOLUTION GUIDELINES/ SPECIAL INSTRUCTIONS DEADLINE:
• Make sure to upload the solution file before the due date on VULMS
• Any submission made via email after the due date will not be accepted FORMATTING GUIDELINES:
• Use the font style “Times New Roman” or “Arial” and font size “12”
• It is advised to compose your document in MS-Word format
• You may also compose your assignment in Open Office format
• Use black and blue font colour only RULES FOR MARKING
• Please note that your assignment will not be graded or graded as Zero (0), if:
• It is submitted after the due date.
• The file you uploaded does not open or is corrupt.
• It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.
• Not submitted as per given format
• It is cheated or copied from other students, internet, books, journals etc.
Note related to load shedding:
Dear students,
As you know that semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments or GDBs.
Best of Luck!!
Re: MGT201 GDB 1 Solution and Discussion
Total Marks 5
Starting Date Wednesday, June 03, 2020
Closing Date Tuesday, June 09, 2020
Status Open
Question Title GDB #01
Question Description
Discussion Topic: Time Value of Money
Discussion Question:
Mr. Ahmed has just received gratuity and he is looking for a suitable investment option that will repay him in long term. He has consulted his friend to invest Rs. 100,000 out of his gratuity amount. His friend has suggested following two options:
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.
Required:
Calculate the value of both investment options
Based on the calculation of part 1, which option Mr.Ahmed should select and why?
Note: Complete Calculations and formulas are mandatory; marks will be deducted on providing just answers).
Important Instructions:
Post your GDB comments (answer) against GDB # 01 rather than against lessons’ MDB.
Your discussion must be based on logical facts.
Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
Obnoxious or ignoble answer should be strictly avoided.
Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB.
For Detailed Instructions, please read the GDB # 01 announcement.
Best of Luck!!
Financial Management- MGT201
Assignment #01 Marks = 20
Portfolio Risk and Return Analysis Diversification is considered as a key to reduce portfolio risk. Investors and portfolio managers try to construct an efficient portfolio with an aim to maximize return by keeping the risk at
minimum level. In this process, the decision to include any security in a portfolio depends on many factors, among which risk and return of securities are at top. Along with risk and return of individual securities, it is also important to consider the correlation among portfolio securities as
the key to diversification is to add un-correlated or negatively correlated securities in the portfolio that can help in reducing the risk. Considering this information about diversification and portfolio construction, you are required to construct equally weighted portfolios of two securities with all possible combination of securities. From the market analysis, following information is available about three securities:
Security A’s expected return
15%
Security B’s expected return
16%
Security C’s expected return
10%
Market return
15%
Risk free rate of return
12%
Market Beta
1
Requirements:
List down all possible portfolios consisting of different combination of 2 securities.
Hint: Portfolio 1 = Security A + Security B
Calculate expected return for each possible portfolio.
Calculate beta for each possible portfolio (calculation of individual stock betas is also
mandatory).
Identify the portfolio that is riskier than market.
NOTE: Formula and calculations are mandatory in each part as these carry marks.
IMPORTANT NOTE:
24 hours extra / grace period after the due date is usually available to overcome uploading
difficulties. 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.
IMPORTANT INSTRUCTIONS/ SOLUTION GUIDELINES/ SPECIAL
INSTRUCTIONS
DEADLINE:
• Make sure to upload the solution file before the due date on VULMS
• Any submission made via email after the due date will not be accepted
FORMATTING GUIDELINES:
• Use the font style “Times New Roman” or “Arial” and font size “12”
• It is advised to compose your document in MS-Word format
• You may also compose your assignment in Open Office format
• Use black and blue font colors only
RULES FOR MARKING
• Please note that your assignment will not be graded or graded as Zero (0), if:
• It is submitted after the due date.
• The file you uploaded does not open or is corrupt.
• It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.
• Not submitted as per given format
• It is cheated or copied from other students, internet, books, journals etc.
Note related to load shedding: Please be proactive.
Dear students,
As you know that semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments or GDBs.
Best of Luck!!
Analysis of financial Statements…
Opening Date Nov 18, 2019
Closing Date Nov 22, 2019
Discussion topic: Analysis of Financial Statements
Discussion Question:
A fresh graduate from a well-recognized university got a job as a financial analyst in a reputed firm whose responsibility is to forecast and provide an opinion to its valued customers about future and recent investment. The finance manager of the firm wants to ascertain knowledge of the graduate and provided a project for valuation of two companies like Company A and Company B. The main motive of the project is to check the management effectiveness for shareholders’ wealth maximization.
In the past, management valued the decisions about managerial effectiveness for wealth maximization on the basis of Economic Value Added (EVA). Therefore, the graduate focuses EVA because EVA is better to measure managerial effectiveness. The management of the firm provided following information of two startup ventures to graduate
Company A
Company B
Current stock price (in Rs.)
12.5
18
Total assets (in Rs.)
30,000,000
50,000,000
Total liabilities (in Rs.)
20,000,000
35,000,000
Interest (in Rs.)
700,000
800,000
Tax (in Rs.)
780,000
690,000
NET INCOME (in Rs.)
1,820,000
1,610,000
Cost of Capital (in Rs.)
900,000
1,100,000
Outstanding share (No)
1,200,000
1,100,000
Requirements:
Calculate Economic Valued Added (EVA) of both Companies.
Based on the calculations, which company will you suggest for investment and why? (Your selection should be supported with logical reasoning)
Note: Complete Calculations for EVA are mandatory; marks will be deducted on providing just answers).
Important Instructions:
Post your GDB comments (answer) against GDB # 01 rather than against lessons’ MDB.
Your discussion must be based on logical facts.
Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
Obnoxious or ignoble answer should be strictly avoided.
Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB.
For Detailed Instructions, please read the GDB # 01 announcement.
Best of Luck!!
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