marketing and finance

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BCO212 BUSINESS FINANCE I

FINAL ASSIGNMENT – CASES

For this Midterm Assignment, worth 50% of the final mark and to be delivered before 19 July 2021

at 14:00 CET (Week 8), the student must carry out the following individual work:

Topic: Cases

This assignment aims at putting in the practice the concepts covered in the first part of the course:

Interest Rates and Bond Valuation, Equity Valuations.

INTRODUCTION

The students can base their replies on wider research, even from the internet sources, however, all

information should be appropriately referred using Business School’s referencing style. Although

student’s quantitative analysis will be same, however, justification, use of theory, paper structure

and background for recommendation is to be explained in detail for which you will get higher awards.

Using the Turnitin will allow us to detect very easily copied answers.

Requirement:

Submission is required in MS Word or PDF format via Turnitin submission link (‘Final Assignment –

Submission Point’) in Week 8 Assessments. MS Excel file, with all the solutions, is to be uploaded

via submission link (‘Final Assignment – Submission Point’) in Week 8 Assessments.

In MS Word/PDF document, Students must have a cover page, with name, Table of Contents,

References and Appendix (if necessary)

CASES

2 questions are to be answered (please notice the weights in brackets assigned for each problem)

Question 1 (Interest Rates and Bonds Valuations) (50%)

Assume it is 31 December 2020. An investor has researched two possible bond investments;

however, some important information is missing in the details of the description of the investment

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opportunities. The latest coupon on each bond has just been paid. Each bond has a face, or par,

value of €1000. The investor assumes that each bond pays coupons annually.

Bond Coupon rate Maturity Current price Yield to maturity ABC 6.50% 31 December 2026 ? 5.50% XYZ 5.00% 31 December 2028 €968.33 ?

a) Complete the table by calculating the current price of bond ABC (10 points) and yield to

maturity of bond XYZ (10 points).

b) The investor subsequently realizes the ABC bond makes semi-annual coupon payments.

Recalculate the current price of the ABC bond. (10 points).

c) Assume for ABC corporation only (with the annual coupon), market interest rate increases,

which results in increase YTM to 7.50%. What will be the revised current price of the Bond?

(10 points) What will you deduce about the relationship between market interest rate and

bond prices? (10 points)

Question 2 (Equity Valuations) (50%)

You have finally saved $10,000 and are ready to make your first investment. You have the following

two alternatives for investing that money:

1. Southeast Carcorp preferred stock paying a dividend of $1.63 and selling for $25.25.

2. Emerson Electric common stock selling for $65. The stock recently paid a $1.80 dividend

and the firm’s earnings per share has increased at the rate of 9.15% in the past 5 years. The

firm expects to grow at the same rate for the foreseeable future.

The required return for preferred stock is 9% and common stock is 12%.

d) Calculate the value of preferred stock (10 points) and the common stock (10 points) using

the corresponding required rate of return.

e) Which investment would you select? Why? (10 points)

f) Calculate the expected rate of return for investors in preferred stock (10 points) and in

common stock. (10 points)

DELIVERIES

You will need to upload the elaborated Business Report via Turnitin and the supportive excel file via

links you may find in the Week 8 Assessments (‘Final Assignment – Submission Point’)

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REQUIREMENTS

Timing for the assignment

• Deadline: 19 July 2021 at 14:00 CET

Word count: total: no max word words.

Structure of the Report:

1. Cover page: The first page must contain the full name of the student, the logo of the school

as well as the name of the course and the name of the professor.

2. The Table of Contents

3. Body of the Report

4. Bibliography: You should use the Harvard Referencing System.

5. Appendix

It assesses the following learning outcomes:

• Outcome 1: Categorize the value of bonds as per risk, maturity, rate of return; assess bonds

yields within the current financial markets’ conditions.

• Outcome 2: Analyze the different types of stocks (preferred and common), asses their value

and rate of return.