Finance Homework: Valuation, Bonds, and Portfolio Analysis

This homework assignment solution provides a comprehensive analysis of various financial concepts. Part A focuses on calculating present values of cash flows under different interest rates and time periods. Part B, C, D and E address the amount of deposit required for the entity. Answer 2 delves into bond valuation, calculating bond prices and coupon rates. It also explores dividend returns, calculating the current stock price, expected dividend, and capital gains, culminating in a total return analysis. Answer 3 involves the calculation of net present value (NPV) for a project under different discount rates, determining the project's viability. Finally, Answer 4 covers capital allocation and portfolio analysis, including the computation of standard deviation, return, and the construction of a capital allocation line (CAL) to illustrate the relationship between risk and return. The document offers a detailed breakdown of each calculation, providing insights into financial analysis and portfolio management.

Answer 1
PART A
a) The cash flows of the company will be computed on the basis of figure available like there is
a flow of annual payment of 42,000 for 20 years with the rate of interest of 9% for 12 years
and 12% for 20 years.
b) The Present value of fund after 12 years is (313716.63)
c) The Present value at the end of 1 year is 111537.16
d) The present value today stands at 102327.66
PART B
A sum of $ 313716 needs to be deposited by the company at the end of the twelve year by the
entity.
PART C
The entity must deposit a sum of $15576 over a period of twelve year when the discounting factor
rate is 9%.
PART D:
The entity must deposit a sum of $14670 over a period of twelve year when the discounting factor
rate is 12%.
PART E:
If the payment is on perpetuity basis than the total sum of amount that needs to be deposited by
the entity is $17377.
ANSWER 2:
PART A
The Price of Bond A is computed here under:
Bond A
Face Value 40000
Maturity 20 Years
0-6 Years 0
07-14 years 2000 Semi Annually
15-20 years 2500 Semi Annually
Required Rate of Return 12%
Current Price of Face value 4146.67
Current Price of 07-14 years 20659.17
Current Price of 15-20 years 8663.37
Price of Bond 33469.21
The price of Bond B:

Bond B
Face Value 40000
Maturity 20 Years
Required Rate of Return 12%
Current Price 4146.67
PARTB:
The Coupon rate of Bond is computed here under:
Current Price 768
Face Value 1000
Interest Semi Annually
Market Rate 10%
Interest Semi Annually 62.24
Interest Annually 124.49
Interest % 12.45% Semi Annually
PARTC:
A. The dividend returns for the year
Dividend 2
Growth 6%
Discount Rate 16%
Expected Dividend Year 0 1 3
2 2.12 2.2472
B.Th. current stock price of the entity is $21.2.
C.The Firm expected value in one year is $13.25.
D i) The expected dividend yield computed as follows:
Year 0 1
Expected dividend yield 9% 9%
ii)Capital Gain yield:
The capital Gain Yield is computed at 6%
iii)The total return is computed by considering capital yield of the company and the dividend growth
of the company. The capital yield is around 6% and the dividend yield for the company is around
10%. This the total return for the company is around 16%.

ANSWER 3:
The net present value of the project was computed to be $-65,33,019 by considering 23 % as the
discounting factor. The net present value of the project was computed to be $-334,70,00 by
considering 18 % as the discounting factor. The net present value of the project was computed to be
$55,93,984 by considering 10 % as the discounting factor. If the discount rate is considered 10% than
it is considered viable for the project.
ANSWER 4:
PART A
Capital allocation derived from the portfolio here as under:
18.00% 18.50% 19.00% 19.50% 20.00% 20.50% 21.00% 21.50% 22.00% 22.50%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
14.0%14.4%14.8%15.2%15.6%16.0%16.4% 16.8% 17.2% 17.6% 18.0%
The return and the standard deviation plotted in the graph below:
SD Return
0 8.00%
1.88% 8.71%
3.75% 9.42%
5.63% 10.13%
7.51% 10.84%
9.38% 11.55%
11.26% 12.25%
13.14% 12.96%
15.02% 13.67%
16.89% 14.38%
18.77% 15.09%

0.00% 1.88% 3.75% 5.63% 7.51% 9.38% 11.26
% 13.14
% 15.02
% 16.89
% 18.77
%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
CAL
SD
Return
Graph showing the return and the standard deviation
PART B:
Computation of the standard deviation of the portfolio are here in below:
Sd 12%
SD of Portfolio 15.1%
% of Portfolio A 79.5181%
% of Risk-Free Asset 20.4819%