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MB0045,MB0045 –Financial Management , Spring/Summer 2012

# MB0045,MB0045 –Financial Management , Spring/Summer 2012

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MB0045,MB0045 –Financial Management , Spring/Summer 2012
MB0045,MB0045 –Financial Management , Spring/Summer 2012

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05/13/2014

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Master of Business Administration- MBA Semester 2MB0045 –Financial Management - 4 Credits(Book ID: B1134)Assignment Set- 1 (60 Marks)
Note: Each Question carries 10 marks. Answer all the questions.Q1. Show the relationship between required rate of return and coupon rate on the valueof a bond.
The relation between the required rate of interest (K
d
) and the discount rate are displayed below.· When K
d
is equal to the coupon rate, the intrinsic value of the bond is equal to its face value.· When K
d
is greater than the coupon rate, the intrinsic value of the bond is less than its face value.· When K
d
is lesser than the coupon rate, the intrinsic value of the bond is greater than its facevalue.
Number of years of maturity
· When K
d
is greater than the coupon rate, the discount on the bond declines as maturityapproaches.· When K
d
is less than the coupon rate, the premium on the bond declines as the maturityincreases.
Yield to maturity
Yield to maturity (YTM) determines the market value of the bond. The bond price will fluctuate tothe changes in market interest rates. A bond’s price moves inversely proportional to its YTM.
Q2. What do you understand by operating cycle?
Operating Cycle

The time gap between acquisition of resources and collection of cash from customers is known asthe operating cycle
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Q3. What is the implication of operating leverage for a firm?
The applications of operating leverage are as follows:
Q4. Explain the factors affecting Financial Plan.
Factors affecting Finanical Plan

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Q5. An employee of a bank deposits Rs. 30000 into his PF A/c at the end of each year for 20 years. What is the amount he will accumulate in his PF at the end of 20 years,if the rate of interest given by PF authorities is 9%?Hint
Amount= 1534800
Q6 .Mr. Anant purchases a bond whose face value is Rs.1000, and which has a nominal interest rate of 8%. The maturity period is 5 years. The required rate of return is10%. What is the price he should be willing to pay now to purchase the bond?