Nodule -3

PAGE NO.
DATE s i 2
Proalens om riak rtusn

Caluulation o epected mehem

Calcutate the expeted ehn steck.

Porible reben Ce) Probability CP)

20 0,2.
30
o.ly

(Pxe ).
-25 0.0 -|.9r

-I0

O.1. 2.2

20 3

30 O.20

E CPKe) : L6.2$
 no dliidenda
E190 has end ead
2A stocle contiA
see for
ere a

the stodk might

robability
CP
Pria Ch)

120

130

940
for the abore Mtock.
the mborn g ecpeted Tehm
Caluate
an this Problem we need to swe Tm §a expeted

ehan

Step g- h

.-Po
120
(20 I20

(20
130 120

(20 S.33. :h.

12
140 120
20:s) I6.
 PAGE NC

CATE

P Pxe)
-l4.14 O.I0

O. I0

4.19 0,2 o.834

8.33 o.3 2.444
12.s O,2

t6.4 I64
ECPxe) =.086

Problem om calulation o stanard deviabon ot T (o)

where SD o
n
JE (e-E)e

Caluuat expected metrn cArder SD ot rehn for geocde

haueng he Raltocoing probahility distribution o ritny.

Possible rebon (-) Prolcabiity ot occeune
- 0.o
-0.

20 .s' 0. 2
34.* 0.20
o,t
 mehun
(E)
Kpctect
Cal" ot
Ctep.!

PKR

O.0 -1. 24
-2

2.2

20 O.2s

O.20 6
3 Sr

8tp 3 - Car of standerd deriation ot stock

Jgce-e)p

(R-e) (e-eyp
-2r
101.56
-l0 0.10
-26.2 684.06 6g.91
0.t0
-16.2r 264.06
26.41
-:2r
0 3.4
O.23
14.06
30 O. 20
13.5
35 I84.06
Ig. 34.g12
351.G
S2.2
294.67
SD =
J294.69
L6.S
 ldona
PAGE NC
DATE

ABe ompany you aTe expected caliulate ER SD (oOn

Posi be ate ot rehesn

Rrobabiit
O.20

0.I0

0.30

Step I: Caun
f expected etern (e)
&CPxe )
P PKe
O.0 O. 20 O,0

O.006

O.30 0.033

Caun

C8-e) (e-R)2 (e-2)2 p

0.20 t*0.034 O. 0003042
o. boot2

0.000g40
0.30 -0.0003 23

SD Jo. 00os69
O.024
 2e

eociated
pobahiehe
etun
he pocsible
below
piien geety Y
P
P
.10 0.20
12
0.30

O, 2

O.10

o.DS

Calutate the epeuted reun s SD of

which secunity is Ooth or ivutnent

and udge

Callahion of Expected Ttum S SD on

PxR (e-)>ce- (e-@)'P

- (l.3 I29.64 I2.69
S3.24
-2.3 S24 2.16
B.49 e.1221
0.ID 20 2 2.
29

) Calielahon of Erpected
Terh
4.99 2.24ws^

33.468

SD Jse-p
S33468
S.822
 PAGE NO.

DATE

calceeatbon of expected mtrn Leuaity Y

P PxR cR-R) (e-)

-4.28 S.20
o.20 18.D6 3.61
o. 30 I2 3.6 0.24 O.06 0.02
0.2 3.5 2. .s6 |.40
O.10
33.0C 3.31
20 6o.O6 3.00
i223^ 1.
as Caleulabon of Gpeted rutah

.
From the above calilation:Le can, interprut that
Secunity X Erpe ctec = retmg SD ds squte highes tham
Seusity îhat hows that seunity
Y. K has higher Tebn
to
ker Ae urity .
 bto
ASB ame 9irtn
on
he mhns
Rrobaiity A SwrrtyA
A 8Seuerit
iSeunty

as an: iwestr actuisor recormd

Ahume yoerncf

the prefeni Caluldte P SD.

ulation o: 2 A SD of deuerity A

P PKR
2 •.2 1. 44 o.72
2 o.64 8.26
S684
28

to) Galcalaton oExpechd mean

Jj.a6 .326

Caluaion
of

(PxR) (2-R)
(e-E)Ce-E)?p
.2 2.28 I. 12
0.3 2. O.9
2.2{ 0.22

2.28
 -cdona
PAGE NO
DATE

Calulation of Expeted Tetn

ECPXR) =

SD
 +
Valuation
fa bendi
Citkd)n
CI+ka)2

a
bond
o
where

R,

HV
:
Va

Intrest
Matrity
Value

Value,
CoSt of

n:ho.
bond
o yean

an 8 ., 1000
to peerchae
3An dnvutor i considening

ater 5 yean at par, The invntori

bond medetmable
os cost ot cdeb t n Cost o bond
ate oh rchom
the present value of he bond.
what i
is 1o.l.,

Va R, + R2
n5yeard

80
Cl+o.1o) lroo (+040)3 Q+0.1D (1+0) (

I.33) |.46

2 An invstor dA considening to puThas 12-/,, 1000 T

bond fter 5 ead pa. The iytors regund ote t
bon s ,
14. what ahoud be u illongny
aúllengn t P
mos to purhase the bond.
 PAGE NO.

DATE /

Waluation of bonc

nSear
Ld o.14

Vd 120
(+0.14)
120 + 120 + 12o + 120
C(+ot4ý2 4t0.14 CIto.yr

((t0.14)S
120 120 120
1 24 4.48 |.42 I.4 2

434

Valuatbon drredee mabe loord

Vol

where e anhual interest, ld: rquisd of Tetun

: te

Vod volction of a bend

Amun has a perpetual bend of Zi000 . He meceives inteey

.
M

o 6o amually what uud be the pretend vale ot fhe

2= 6o
 C +
Yiee! tomabnity

CVE ae vole, MP No
te
Where c: fntet

dnformation My
YTH the tougaing
Cal utate
it
intertuith
own a bond

IS yeav mahri'ty

Gven MV = 12

X (00 1
A6

Ms. Amun.wonti
to invest
mret benol
ie, bondy t
prie
tae volus Tios,:
Coupon Gt temn 2yea2
C: 12},
ate i2[.aluate Y7N.
 -cldora
PAGE NO.

DATE

108-TOT
12 +

(0St0

sie
2-0, 94

Caloion of durntion of a bond

A

Purcuion ds a
Mese ot interest Tote risk of a bond,
t mmecture time periood to qet lbact the invetmat.
Ln dovUtment
prospectie it the clurrtion o a bonc
it s recommanded to he investor ot to
invut on Auch loond. the durotion of a bOn c

shortt it is me commend to inwest in such bonds.

Durtion .& Pv cash irlous X Time

SP pathttows
A bond ot Zl00 ith 12/. coupon rote redemoble ayter s yecy
at S: premium The oate ot mean ./. calelate
duration ot, a bend.
Callaton of duTaton of.a bond

Teanrash intows Pvat 4/ pr cahinloos x Yecos

2 10.s2
2 O,69 q-229
3 12 24.3
12 0.K42 a.104 28.416
12 6.228
S4.49K 2?2.4
33S, 30
 ill

the ivuto
thi's
problm
Note! Ln

mate
Fv X Coupon
auh inlows 12

Dusation :
eevcahinglows

as6
too24-4ea

Valuaion ot preerens shar

where Ve Value t prelerene chaes

b) adumabi pmferente hoe

D. D Dn RV

ivderd

Cost ot preerne
2Y cortas
Redemable al
 Mr. X wanti to nrest on preferene th ares.

te calutate valu of pryerene shny los the Given blau

informton.
) ihe o. u Goung to dectare
dectarr dividend
dividend z40
4o sS Cos t of perene

2pital
b) he lo s goig to delan cividend žC at the cest ot,

St s the edemab'e vile Z660

prefrena apital
at the end ok S ye:
Calulaton of vole ot preterene shares :
400

b) Vp :D:+ D CitKp)2
+ D

(l+4p)3 CI+kpy
+ Dy +

C1+kpjr
D;^

((tkp)s

CU.o8)'
+6
(-08)2 (.09)3
+6 (l.oy (I.o3)S

C.4)

Mr. Rroween oanti to ìvet on preyerene shanes where the

dividend iu 2-/ On kace value 1000 The redeenbe
vale
dhanes
atter
s
1000
' X I2:
cost
yean
o
u

pyrene
Z6oe, Calclate
apital
alue o
prlrno

RV : 600
= 0. )
 Da
Dg
+Dy Cltkp)4
Ve (HKp)3

120
+(1to.)4
120

(+0)4
120 (+0.1)3
(l+0.))2
(i+0./)!

120
I20 +6O
I20
120

120 20 120 120 + 6O0

(1.2/). 33yt .46) (u46)

I09-09 +99.1? +90:22 + 32.14 +t.4 10 .9s

ul6l24

)
Valuatien

Dirtdend
Equit Shays

distount methocl z Ve
Do+P)
tkej:
b) Eamng
Capttalisabon
method'Ve D: t Da

where Do :Diridend,
ej2
 t ve > CMP es inves tor nould buy
PAGE NO.

DATE

Currenl mortet pie Z90, ne t yecr expectal diridend s t4(Shae

Egpected priu of kbare ater (year TA9, quired ate
, of

ribrn 19 what shoulo be tha valee ot equity here

whethr the invetor houlo buy thls lare

Do = Y,

Ve : C4 92)
C1+0.8)
46

Sine alue of equtty share i more thn unentmarte

prte, the inves tor hewd buy the shae.

2 Cerent mrleet pie u Bo, expected eiiderd for hext 2 yeary

23 s ž3.s; Expected pria .atthe end. 2 year Ž30

meton 16-/.,. Whati the value
Anvesto heqired ate

whethe the invutos shoud nvest in

ghane

this equity Slere.

, :?3,

De Pn
Ve
(+Ve)
3.s + 20
(
1+0.16 C! +0.6 y2 Qto 16)2

+ 3.S
134
64.89
2.S8+ 2.6|t S9.9O
than
Cormment i Sine vale of eqty shau iu mone

CMP. the inUtor Ahod buy.

 DATE

Gouth Ncodel

dindncl
a) Consbamt

b Con tont goowth te Vo

ke-9

Setion 8'
valie of eqity hare
Genthe informaBen, calulate
loe, nate of retn
yean dindend .ds ZO
ved
a kast

b lat year diricdend 13/share, erpebed groth ate tol.

reguined ote ot metun 6p.a rWhat shoud be te

morket
Value of equit hareit. the ieument prieîx žIN.

Bhoud' Bhe iveston to 90tor his

39.33

Do 3

3.3J:

Vo 323.

0.16-0, )

Comment í Sinu value o

aqity glaer id:
ummnt recten
mealet prite, inretor ahoud toy
 PAGE

N
CATE

Caltabion t valee of eqity Share

by earnirng capitalisabon mebho

where EPS : Brnings Pes lae

cost o eqity
2E : Petaind ecominyg

9 aooth mate

An investor expeti that K Pods tel will hwe EPS o ts

the end of cmnt. accounting year s ie expected to

dividend o EI/ share he m R0E CKe) a ilkel to

be ig.. equty l6.Col cutete vae
of
investors

equety shares
as Deviclend dscount
au
cost of

per
modlet
ad per (Orootth mte is g)
b) Eoming canttall cation modu

Calulation of vae of equety shere wing dividend diuceunt

modet
D. /e-
Co.I6-o.og)

ke =0.I6
 m

Banny cataEton
caritalisoion
ot Ne cs per
Caleutatin

PE CR-ke)
-7
TEes)+

2E EPS - :
Ve + *(e1s-o.16)-)

O.1G - O. D

:S31.25t fo.o8]-1)
o.08
B1.2$ + (-0.42)

19.