business finance 1 final exam

COURSE CODE: BCO 212 COURSE NAME: Business Finance 1 Task brief & rubrics

Task: EXERCISE 3

Details of the task:

 individual

 answer the questions below

 Submission: one .pdf file

Formalities:

 Wordcount: no more than 900 words.

 Cover, Table of Contents, References and Appendix are excluded of the total wordcount.

 Font: Arial 12,5 pts.

 Text alignment: Justified.

 The in-text References and the Bibliography have to be in Harvard’s citation style.

Submission: TBA

Weight: This task is a 33.3% of your total grade for this subject.

It assesses the following learning outcomes:

 To be able to apply the concept of time value of money

 Apply financial models of annuities and perpetuities

Exercise 1 (20 points):

Compute the price of the following bonds:

 Bond A: Coupon bond, 2% coupon paid semi-annually, with maturity of 12 years.

 Bond B: Zero coupon bond with maturity of 6 years.

 Bond C: Coupon bond, 5.75% coupon paid yearly, with maturity 20 years. Assume that all 3 bonds have the same nominal: 1000 euro. Your required rate of return is the same for each bond and equal to 5%.

Exercise 2 (30 points):

Compute yield-to-maturity for the following zero-coupon bonds:

 1-year zero-coupon bond, traded currently at 990 dollars

 2-years zero-coupon bond, traded currently at 950 dollars

 3-years zero-coupon bond, traded currently at 890 dollars

Assume that all 3 bonds have the same nominal: 1000 dollars. Using YTMs calculated plot the yield curve.

Exercise 3 (50 points):

Procter & Gamble will pay an annual dividend of $0.65 one year from now. Analysts expect this dividend to grow at 12% per year thereafter until the fifth year. After then, growth will level off at 2% per year. What is the value of a share of Procter & Gamble stock if the firm’s equity cost of capital is 8%?

Rubrics:

Exceptional 90-100 Good 80-89 Fair 70-79 Marginal fail 60-69

Knowledge & Understanding

(20%)

Student demonstrates excellent understanding of key concepts and uses vocabulary in an entirely appropriate manner.

Student demonstrates good understanding of the task and mentions some relevant concepts and demonstrates use of the relevant vocabulary.

Student understands the task and provides minimum theory and/or some use of vocabulary.

Student understands the task and attempts to answer the question but does not mention key concepts or uses minimum amount of relevant vocabulary.

Application (30%) Student applies fully relevant knowledge from the topics delivered in class.

Student applies mostly relevant knowledge from the topics delivered in class.

Student applies some relevant knowledge from the topics delivered in class. Misunderstanding may be evident.

Student applies little relevant knowledge from the topics delivered in class. Misunderstands are evident.

Critical Thinking (30%)

Student critically assesses in excellent ways, drawing outstanding conclusions from relevant authors.

Student critically assesses in good ways, drawing conclusions from relevant authors and references.

Student provides some insights but stays on the surface of the topic. References may not be relevant.

Student makes little or none critical thinking insights, does not quote appropriate authors, and does not provide valid sources.

Communication (20%)

Student communicates their ideas extremely clearly and concisely, respecting word count, grammar and spellcheck

Student communicates their ideas clearly and concisely, respecting word count, grammar and spellcheck

Student communicates their ideas with some clarity and concision. It may be slightly over or under the wordcount limit. Some misspelling errors may be evident.

Student communicates their ideas in a somewhat unclear and unconcise way. Does not reach or does exceed wordcount excessively and misspelling errors are evident.