CBA - Time Value of Money and Bond Valuation

Running head: CBA
CBA
Name of the Student:
Name of the University:
Author Note:

CBA1
Table of Contents
Introduction:...............................................................................................................................2
Answer to part 1:........................................................................................................................2
Part a:.....................................................................................................................................2
Part b:.....................................................................................................................................3
Part c:.....................................................................................................................................3
Part d:.....................................................................................................................................4
Part e:.....................................................................................................................................4
Part f:......................................................................................................................................5
Answer to part 2:........................................................................................................................5
Part a:.....................................................................................................................................5
Part i:..................................................................................................................................5
Part ii:.................................................................................................................................6
Part b:.....................................................................................................................................7
Answer to part 3:........................................................................................................................7
Bibliographies:.........................................................................................................................10

CBA2
Introduction:
In the following report various Time value of money and bond valuation questions are
answered which had been provided in the assignment. The questions were related to the
Commonwealth Bank of Australia and the first six questions have been answered along with
the screenshot of the solved solution. In question 2, the expected return of the stock is
calculated using the capital assets pricing model and also the expected return of the
hypothetical company is calculated. A portfolio comprising of the stock of these two
companies is constructed and a risk return analysis of the stock and portfolio is conducted in
Question 3.
Answer to part 1:
Part a:
The money which will be received by the case company from the bank is the present
value of the future payments and is $5069.10. The periods is taken as 60 while the per month
amount which is received by the company is $98. The rate at which the amount is to be
discounted is 0.5% which is calculated by dividing the annual rate by 12. The future value of
the amount is taken as 0 (Alford, Luchtenberg and Reddie 2018).
Figure 1: Amount which is to be received from the bank.
Source: By the Author

CBA3
Part b:
The current revenue for the commonwealth bank of Australia is taken as $22856,
while the growth rate of the revenue is 1.22%. Thus by using the chain method the revenue
for the Bank is calculated for the 7Th year. The projected revenue for the bank in the seventh
year is $24880.81.
Alternative method of calculating the revenue for the seventh year for the bank is to
take the growth rate and is raised to the power of seven which is multiplied with the current
revenue (Chandra 2017).
Figure 2: Forecasted Revenue for CAB at the 7th Year.
Source: By the Author
Part c:
The different loan options which are available to the company are analysed by
calculating the effective annual rate of the three loan options. Since the three loans have
different interest rates along with different compounding frequency. Thus Effective annual
rate helps in comparison of the three options at a common level. The Effective annual rate of
loan A is 6.039%, while of loan B has an Effective annual rate of 6.189%. Loan C has an
effective annual rate of 6.084%, thus the lowest cost of loan which the company can avail is
loan A which has the lowest effective annual rate (Daly 2018).