Mgt411 Assignment No. 1 Solution

MGT411 Assignment # 1

 

Question # 1: part (A)

 

To solve this question first we have to calculate the future value

 

Pv*(1+ ( i/n ))^n

 

=1000*(1.05)^30 = 4321.942

 

Put the figures in the formula for PV

 

Present value formula = fv/(1+(i/n))^n

 

 4321.942 / (1.06)^30 = 752.494

 

(Note: This bond is not acceptable)

 

 

Question # 1: part (B)

In an equation,

	c(1 + r)-1 + c(1 + r)-2 + . . . + c(1 + r)-Y + B(1 + r)-Y = P
Where
	c = annual coupon payment (in dollars, not a percent)
	Y = number of years to maturity
	B = par value
	P = purchase price

           

YTM = c (1 + r)^-1 + c(1 + r)^-2 + . . . + c(1 + r)^-Y + B(1 + r)^-Y

 

Coupon rate = 12%

Coupon payment = 950*(1.12) = 1120

 

(Solve it by your self. Final solved file will uploaded 24 hrs before last date)

 

Question # 1: part (C)

 

IRR = -Io + cf/(1+i)^n + cf/(1+i)^n + cf/(1+i)^n +…….

 

 

-50,00000 + 20,00000/(1+.19)^¹+25,00000/(1+.19)^²+10,00000/(1+.19)^³

+ 15,00000 /(1+.19)^⁴ + 500,000 / (1+.19)^⁵

 

 

-50,00000 + 1680672+ 1765412 +593415.8+748003.1+209524.7 = -2972.06

this is most appropriate ans.

.........................

Semester "Fall 2010"
"Money & Banking (MGT411)"
Assignment No. 01 Marks: 15

Important Tips
1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 1 to lecture no 13 and reading handouts as well as
recommended text book).
2. Video lectures can be downloaded for free from Online VU Lectures .
Schedule
Opening Date and Time November 04 , 2010 At 12:01 A.M. (Mid-Night)
Due Date and Time November 10 , 2010 At 11:59 P.M. (Mid-Night)

Note: Only in the case of Assignment, 24 Hrs extra / grace period after the above mentioned
due date is usually available to overcome uploading difficulties which may be faced by the
students on last date. 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.

Question no 1

Part (a)
On 01 January 2010 JS ***** want to issue bonds in the capital market having
face value Rs.1, 000 with coupon rate of 10% (semi annually and 15 years
maturity).
You are being the student of finance know the worth of fundamental methods of
valuation; therefore you are required to calculate the present value of the bond by
utilizing the fundamental methods.

Part (b)
The bond of JS ***** is traded in the Karachi Stock exchange for Rs.950. The
par value of the bond is Rs.1, 000. The coupon rate is fixed at 12 % paid annually.
This bond will be matured after 03 year. What will be (YTM) of this bond?

Part (c)
EFU, an insurance company, wants to plan a new service to its policy holders.
During the meeting of executives, CEO offered a plan of house insurance. The
summary of estimated cash flows which were discussed in that meeting is:
· This project will need Rs.05 million as initial investment
· In the first year company will receive Rs.02 million as premium from the
policy holders.
· In second year, company expect to receive Rs.2.5 millions as premium
· In third year company estimated that it will have to receive only Rs. 01
million because there will be a earth quack in that period, as probability of
having earth quack is more than 80% as predicted by geologists.
· In the fourth year the company estimated to get Rs.1.5 million after clearing
the insurance claims of the policy holders.
· In fifth year they expect to receive only Rs. 0.5 million

Calculate the IRR of above mentioned plan by trail and error method?

Eco401 Online Quiz No. 1 Announced

Online Quiz (No.01) Announcement
Quiz will cover Video Lecture no. 01 to 13

Schedule
Opening Date and Time
November 04, 2010 At 12:01 AM (Mid-Night)

Closing Date and Time
November 08, 2010 At 11:59 PM (Mid-Night)

24 hours extra time is not available

...........

Question # 1 of 15 ( Start time: 04:37:58 AM ) Total Marks: 1 
A rational person does not act unless: 
Select correct option: 

The action is ethical. 
The action produces marginal costs that exceeds marginal benefits. 
The action produces marginal benefits that exceeds marginal costs. 
The action makes money for the person. 

Question # 2 of 15 ( Start time: 04:38:39 AM ) Total Marks: 1 
At any given point on an indifference curve, the the slope is equal to: 
Select correct option: 

Unity. 
The marginal rate of substitution. 
The consumer's marginal utility. 
None of the given options. 

Question # 3 of 15 ( Start time: 04:39:03 AM ) Total Marks: 1 
The burden of a tax is shifted toward buyers if: 
Select correct option: 

Demand is perfectly elastic. 
Demand is relatively more elastic than supply. 
Demand is relatively more inelastic than supply. 
Demand and supply have equal elasticities. 

Question # 4 of 15 ( Start time: 04:39:30 AM ) Total Marks: 1 
An individual with a constant marginal utility of income will be: 
Select correct option: 

Risk averse. 
Risk neutral. 
Risk loving. 
Insufficient information for a decision. 

Question # 5 of 15 ( Start time: 04:39:56 AM ) Total Marks: 1 
If the equilibrium price of bread is Rs. 3 and the government imposes Rs. 2 price ceiling on the price of bread then: 
Select correct option: 

More bread will be produced to meet the increased demand. 
There will be a shortage of bread. 
The demand for bread will decrease because suppliers will reduce their supply. 
A surplus of bread will emerge. 

Question # 6 of 15 ( Start time: 04:40:21 AM ) Total Marks: 1 
Which of the following is not an assumption of ordinal utility analysis? 
Select correct option: 

Consumers are consistent in their preference. 
Consumers can measure the total utility received from any given basket of good. 
Consumers are non-satiated with respect to the goods they confront. 
All are necessary. 

Question # 7 of 15 ( Start time: 04:40:44 AM ) Total Marks: 1 
The numerical measurement of a consumer's preference is called: 
Select correct option: 

Satisfaction. 
Use. 
Pleasure. 
Utility. 

Question # 8 of 15 ( Start time: 04:41:02 AM ) Total Marks: 1 
The marginal rate of substitution is equal to the: 
Select correct option: 

Magnitude of the slope of the indifference curve 
Relative price 
Marginal cost of each good 
Slope of the budget line 

Question # 9 of 15 ( Start time: 04:41:37 AM ) Total Marks: 1 
Moving from left to right, the typical production possibilities curve: 
Select correct option: 

Is horizontal. 
Has a constant positive slope. 
Illustrates increasing opportunity costs. 
Illustrates decreasing opportunity costs. 

Question # 10 of 15 ( Start time: 04:42:12 AM ) Total Marks: 1 
When the price elasticity of demand for a good is greater than 1, we say that the demand is: 
Select correct option: 

Increasing. 
Decreasing. 
Elastic. 
Inelastic. 

Question # 11 of 15 ( Start time: 04:42:32 AM ) Total Marks: 1 
Which of the following is true about the market mechanism? 
Select correct option: 

It is not a very efficient means of communicating consumer demand to the producers of goods and services. 
It works through central planning by government. 
It eliminates market failures created by government. 
It works because prices serve as a means of communication between consumers and producers. 

Question # 12 of 15 ( Start time: 04:43:20 AM ) Total Marks: 1 
You observe that the price of houses and the number of houses purchased both rise over the course of the year. You conclude that: 
Select correct option: 

The demand for houses has increased. 
The demand curve for houses must be upward-sloping. 
The supply of houses has increased. 
Housing construction costs must be decreasing. 

Question # 13 of 15 ( Start time: 04:43:59 AM ) Total Marks: 1 
If marginal product is below average product: 
Select correct option: 

The total product will fall 
The average product will fall 
Average variable costs will fall 
Total revenue will fall 

Question # 14 of 15 ( Start time: 04:44:24 AM ) Total Marks: 1 
Production possibilities analysis assumes that: 
Select correct option: 

Resources and technology increase with production. 
Resources are used to produce thousands of goods. 
Extra resources are saved for emergency use. 
Resources are used in a technically efficient way. 

Question # 15 of 15 ( Start time: 04:44:58 AM ) Total Marks: 1 
Goods X and Y are complements while goods X and Z are substitutes. If the supply of good X increases: 
Select correct option: 

The demand for both Y and Z will increase. 
The demand for Y will increase while the demand for Z will decrease. 
The demand for Y will decrease while the demand for Z will increase. 
The demand for both Y and Z will decrease.

............