Financial Management Assignment

Submitted by: Punit Singh PGDM 2 B Roll no. 77

Perpetual bond
Perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no maturity date.[1] Therefore, it may be treated as equity, not as debt. Perpetual bonds pay coupons forever, and the issuer does not have to redeem them. Their cash flows are, therefore, those of a perpetuity. Examples of perpetual bonds are consols issued by the UK Government. Most perpetual bonds issued nowadays are deeply subordinated bonds issued by banks. The bonds are counted as Tier 1 capital, and help the banks fulfil their capital requirements. Most of these bonds are callable, but the first call date is never less than five years from the date of issuea call protection period. Since perpetual bond payments are similar to stock dividend payments - as they both offer some sort of return for an indefinite period of time - it is logical that they would be priced the same way. The price of a perpetual bond is therefore the fixed interest payment, or coupon amount, divided by some constant discount rate, which represents the speed at which money loses value over time (partly because of inflation). The discount rate denominator reduces the real value of the nominally fixed coupon amounts over time, eventually making this value equal zero. As such, perpetual bonds, even though they pay interest forever, can be assigned a finite value, which in turn represents their price.

Pricing
Perpetual bonds are valued using the formula: y/i where y is an expected yield for maximum term available and i is Annual Coupon Interest on a bond.

Bombay Stock Exchange SENSEX

The Bombay Stock Exchange SENSEX (portmanteau of sensitive and index) also referred to as BSE 30 is a free-float market capitalization-weighted stock market index of 30 wellestablished and financially sound companies listed on Bombay Stock Exchange. The 30 component companies which are some of the largest and most actively traded stocks, are representative of various industrial sectors of the Indian economy. Published since January 1, 1986, the SENSEX is regarded as the pulse of the domestic stock markets in India. The base value of the SENSEX is taken as 100 on April 1, 1979, and its base year as 1978-79. On 25 July, 2001 BSE launched DOLLEX-30, a dollar-linked version of SENSEX. As of 21 April 2011, the market capitalisation of SENSEX was about 29,733 billion (US$565 billion) (42.34% of market capitalization of BSE), while its free-float market capitalization was 15,690 billion (US$298 billion).

Constituents
Main article: List of BSE SENSEX companies Following is the list of the component companies of SENSEX as on August 8, 2011

Adj. Code Name Sector Factor

Weight in Index(%)

532977

Bajaj Auto Ltd

Automotive

0.55

1.6

532454 500103 500087 533278 532868 500010

Bharti Airtel Ltd BHEL Ltd Cipla Ltd Coal India Ltd DLF Ltd HDFC Ltd

Telecom Capital Goods Pharmaceutical Power Construction Finance

0.35 0.35 0.6 0.1 0.2 0.90

3 2.2 1.2 2 0.6 6.8

Adj. Code Name Sector Factor 500180 500182 500440 500696 532174 500209 500875 HDFC Bank Ltd Hero Motorcorp Ltd Hindalco Industries Ltd Hindustan Lever Ltd ICICI Bank Ltd Infosys Ltd ITC Ltd Jaiprakash Associates Ltd 0.85 0.50 0.6 0.50 1.00 0.85 0.70

Weight in Index(%) 7.1 1.43 1.5 2.8 8.8 9.4 8.3

Finance Automotive Aluminum FMCG[3] Finance Information Technology FMCG[3]

532532

Housing Related

0.55

0.5

532286 500510

Jindal Steel & Power Ltd Steel Larsen & Toubro Ltd Mahindra & Mahindra Ltd Maruti Suzuki Ltd NTPC Ltd ONGC Ltd Reliance Industries Ltd Engineering

0.55 1

1.8 8

500520

Automotive

0.75

2.3

532500 532541 500312 500325

Transport Equipments Power Oil & Gas Oil & Gas

0.50 0.15 0.20 0.50

1.3 1.2 3.1 9.2

Adj. Code Name Sector Factor

Weight in Index(%)

500112

SBI

Finance Metal, Metal Products, and Mining

0.45

4.7

500900

Sterlite Industries Ltd

0.45

1.4

524715

Sun Pharmaceutical Industries Ltd TCS Ltd Tata Motors Ltd Tata Power Ltd

Healthcare

0.40

1.5

532540 500570 500400

Information Technology Transport Equipments Power

0.3 0.55 0.70

3.8 2 1.6

500470

Tata Steel Ltd

Metal, Metal Products & 0.70 Mining Information Technology 0.20

2.7

507685

Wipro Ltd

1.4

Some of the historical replacements were:

      

DLF replaced Dr. Reddy's Lab on November 19, 2007. Jaiprakash Associates Ltd replaced Bajaj Auto Ltd on March 14, 2008. Sterlite Industries replaced Ambuja Cements on July 28, 2008. Tata Power Company replaced Cipla Ltd. on July 28, 2008. Sun Pharmaceutical Industries replaced Satyam Computer Services on January 8, 2009 Hero Honda Motors Ltd. replaced Ranbaxy on June 29, 2009 Cipla to replace Sun Pharma from May 3, 2010

  

Grasim replaced JSPL in 2010 Bajaj Auto replaced ACC from Dec 6th, 2010 Coal India replaced Reliance Infrastructure and Sun Pharmaceutical replaced Reliance Communications from Aug 8th, 2011

Definition of 'Free-Float Methodology'

A method by which the market capitalization of an index's underlying companies is calculated. Free-float methodology market capitalization is calculated by taking the equity's price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments. Calculated as: Calculated as: FFM = Share price X(Share outstanding-locked in share)