Question

QUESTION 1:

1. Pretika Holdings Berhad is a property developer company in Malaysia, due to high demand of property, the company has decided to build up a new township which located at Bangi. The project’s estimated cost is RM750 million and they were planning to finance using debt which by issuing bond. The bond has a par value RM1,000 with 8 percent coupon rate and will mature in 10 years. Dr. Keertan is a retail investor and he has decided to buy the bond.

1. Calculate the value of bond (Vb) if the required rate of return is 7 percent.                                                                                 
2. Determine the new value of bond (Vb) if the market rate has increased to 10 percent.    
3. Find the Yield to Maturity (YTM). Use the answer in (ii) as your Present Value.
4. Calculate the Yield to Put (YTP) with the discount rate 6 percent after 3 years.
5. Calculate the Yield to Call (YTC) with the premium rate 5 percent after 8 years.

2. Give TWO (2) the type of bonds and explain an advantages and disadvantages for each.

QUESTION 2:

Thibana Group Berhad is in expansion process of its business operation and is considering the cash flows for the following two mutually exclusive investments. Cash flows projects as follows:

Year	Project A (RM)	Project B (RM)
0	-185,000	-140,000
1	84,000	60,000
2	96,000	0
3	75,000	60,000
4	120,000	60,000
5	135,000	60,000

Additional information:

Required Rate of Return	Required Payback Period	Required Accounting Return	Tax Rate
18 %	4.5 years	40 %	28 %

1. Calculate the payback period for each project to recover their investment costs.
2. Compute the Net Present Value (NPV) for both projects.
3. Calculate the Profitability Index (PI) for both projects.
4. Based on the answer in (a) and (b), determine the best project for company to choose.

QUESTION 3:

1. The risk-free rate is three percent and the market risk portfolio is eight percent. Stock A has beta of 1.2 while stock B has a beta of 0.8.

1. Calculate the value required rate of return on each stock.
2. Assume that investors become less willingness to take on risk, so the market

risk portfolio rises from eight percent to ten percent. Assume that the risk-free rate remains constant. Find the new required rate of return on the two

stocks.

3. Briefly explain why the changes happen.

2. Briefly explain the following terms:

1. Systematic risk                                                                     
2. Unsystematic risk
3. Single asset
4. Portfolio investment

Answer 1

question 1
i) value of bond if required rate is 7%
Year		PV@7%
1	80	74.77
2	80	69.88
3	80	65.30
4	80	61.03
5	80	57.04
6	80	53.31
7	80	49.82
8	80	46.56
9	80	43.51
10	80	40.67
10	1000	508.35
		######
ii) value of bond if required rate is 10%
Year		PV@10%
1	80	72.73
2	80	66.12
3	80	60.11
4	80	54.64
5	80	49.67
6	80	45.16
7	80	41.05
8	80	37.32
9	80	33.93
10	80	30.84
10	1000	385.54
		877.11
iii) YIELD TO MATURITY
	(C+   ((FV-PV)/t))/(fv+pv)/2
	Coupon	80.00
	FV-pv	122.89
	FV-pv/t	12.29
	fv+pv/2	938.55
	Therefore	0.10	10%
IV) Yield to Put (YTP) with the discount rate 6 percent after 3 years
(Annual Interest)+((Price to Put−Current Price)/(Years to Put))      divided BY
(Price to Put+Current Price)/2
Numerator	107.63
denominator	918.555
		0.12	12%
V)Yield to Call (YTC) with the premium rate 5 percent after 8 years
(Annual Interest)+((Price to call−Current Price)/(Years to call))      divided BY
(Price to call+Current Price)/2
Numerator	101.6113
denominator	963.555
		0.11	11%
Question-2
Year	Project A (RM)	PV@18%	Cumulative	Project B (RM)	PV@18%	Cumulative
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