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FIN301 Final Question

This document contains instructions and questions for a final exam in financial management. It is divided into two parts. Part A contains four multi-part questions requiring calculations related to bond pricing, stock pricing, and other financial concepts. Part B contains three short answer questions about corporate goals, over-the-counter markets, and bond yields. The exam is two hours and students may not leave the classroom during the exam or request help from the invigilator regarding the questions.

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69 views

FIN301 Final Question

This document contains instructions and questions for a final exam in financial management. It is divided into two parts. Part A contains four multi-part questions requiring calculations related to bond pricing, stock pricing, and other financial concepts. Part B contains three short answer questions about corporate goals, over-the-counter markets, and bond yields. The exam is two hours and students may not leave the classroom during the exam or request help from the invigilator regarding the questions.

Uploaded by

Junaid
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BRAC Business School

BBA Program, Fall -2017 AAC


FINANCIAL MANAGEMENT (FIN 301)
Section- 4,5

Final Examination-(Marks40) Duration of exam: 2 hours

Instructions:

 NO EXTRA PAGE WILL BE GIVEN


 Understanding question is part of the exam, and do not ask invigilator anything about the
question.
 Make sure you answer all two questions (part A)
 Students are not allowed to leave classroom during exam.

Part A
Answer all two questions(15×2=30):

1. New York Glimpse is thinking about introducing their new product as a part of their
expansion plan which they have been planning over last 4 years but everything was not falling in
place. They instructed their newly hired financial analyst, Chris Guthrie to help to finance the
project. Now they can either issue bond or stock to do the funding of the project. Let's take a look
at the options-
I. Broker has shown Chris two bonds- Bond A and Bond B. Each has a maturity of 12 years,
a par value of $1,000. In terms of yield to Maturity both bonds have shown following trend-
Year Frequency Bond A (YTM) Bond B (YTM)
(Probability)
1 0.3 20% 25%
2 0.2 15% 18%
3 0.1 12% 20%
4 0.2 25% 6%
5 0.2 10% 4%

Based on the historical YTM rate of these two bonds, if the coupon rate of Bond A is 10% and
Bond B is 15%, what should be the rate of return (YTM) and market prices of both bonds. Suppose
Bond A has a rating of AA and Bond B has a rating of A. Both of them annual bonds.
II. Another Funding option for New York Glimpse is to issue common stock. They already
have 500 shares issued in the market. Now they are thinking about issuing another 700 new
shares in the market. So it's stock's return has the following distribution-
Probability Rate of return
0.1 10%
0.4 25%
0.3 15%
0.2 14%

Recent Market prices of New York Glimpse were-


Quarter Stock Price
Q1 $35
Q2 $40
Q3 $45

Last year the company paid a dividend of $4.00. It expects no growth in dividend for next 2
years. In year 3 they are anticipating a growth of 5%, year 4 growth of 3%, year 5 a
growth of 4%. From year 6 to onwards growth should be a constant 5% for an
unspecified period. What should be the rate of return and price of the stock? Do you think
stock's price is overpriced or underpriced.
III. S&S Air has an outstanding issue of $1,000-par value semi-annual bonds(AA) with a 12%
coupon interest rate. The issue pays has 10 years remaining to its maturity date.Two years
from now, the price of the bond in the market is anticipated to be $992. If the coupon rate
remain unchanged what is the yield to maturity after two years? What would be the
Nominal yield and current Yield?
IV. You want to buy a house that costs $90,000. You took a $90,000 mortgage loan at a rate of
7%, provided the loan is paid off in full in 3 years. How large would each annual payment
be? Make an amortization table.

2. I. The financial statements of Zach Industries for the year ended December 31, 2012, follow.
Use the preceding financial statements to determine the following ratios-
 Current ratio
 Average collection period
 Gross profit Margin
 Gearing Ratio
 Return on common equity
 EPS
 P/E Ratio

II. Midwest Electric Company is analyzing two mutually exclusive projects, S and L, with the
following cash flows:

Midwest Electric Company use their funding cost which is 15% to evaluate any project. Suggest if
Lang Enterprises should make this investment based on-
 Net present value

Part B
Short Questions( Answer any 2 out of 3): (5+5=10)

1. What is the goal of the corporation? what are the limitations of profit maximization goal of a
corporation? What should be the reflection of company's goal?

2. Explain the function of Over the counter market.

3. Suppose you are a bond investor and you buy a 7% annual coupon bond for $1,025. The
bond has 15 years to maturity. What rate of return (YTM) would you expect to earn on your
investment? Two years from now, the YTM of the bond has declined by 2% and you decide to sell
it out. What price will your bond sell for?

Formula
Nominal/coupon yield = Coupon payment/face value

Current Yield= Coupon payment/ Market price of the bond

Payback = 𝑌𝑒𝑎𝑟 𝑏𝑒𝑓𝑜𝑟𝑒 𝑓𝑢𝑙𝑙 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦+ 𝑢𝑛𝑐𝑜𝑣𝑒𝑟𝑒𝑑 𝑐𝑜𝑠𝑡÷𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑛𝑒𝑥𝑡


𝑦𝑒𝑎𝑟

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