FINAL EXAM

Spring - 2020

Department / Total
Program Semester Course Title Instructor Issue Date Due Date
Faculty Marks
27th July 28th July
Faculty of
2nd & 3rd Financial 2020 2020
Management BBA Ms. Zohra 40
Semester Management (Mon – (Tues –
Sciences (FMS)
12:00 AM) 11:59 PM)

Note: Attempt all questions and each question carries 06 Marks except Q-6 which is of 10
Marks.

Q# 01: If a 12% annual bond maturing in years is selling in the market for 750 rupees when the
market interest rate is 16%. What is the current yield and YTM of a bond?
Q# 02: Clapper Corp. issued 12-year bonds 2 years ago at a coupon rate of 7.8 percent. The
bonds make semiannual payments. If these bonds currently sell for 108 percent of par value,
what is the YTM?
Q# 03: Steady As She Goes, will pay a year-end dividend of $3 per share. Investors expect the
dividend to grow at a rate of 4 percent indefinitely.
a) If the stock currently sells for $30 per share, what is the expected rate of return on the stock?
b) If the expected rate of return on the stock is 16.5 percent, what is the stock price?
Q# 04: A stock sells for $40. The next dividend will be $4 per share. If the rate of return earned
on reinvested funds is 15 percent and the company reinvests percent of earnings in the firm, what
must be the discount rate?
Q# 05: The following data are from the U Guessed it Company’s financial statements. This
company is a manufacturer of board games for young adults. The market is fiercely competitive,
therefore all sales ($20 million) for the year 1983 were on credit. Given the following ratios, fill
in the balance sheet below:
Sales to Total Assets 2 times
Total debt to assets 40 percent
Current ratio 3.0 times
Inventory turnover 5.0 times
Average collection period 18 days
Fixed Asset turnover 5.0 times
 U Guessed IT CO.
Balance Sheet, 1983

Assets Liabilities & Equity

Cash Total Current Liabilities

A/R Long Term Debt
Inventory
Total Current Asset Total Debt

Fixed Assets Net Worth

Total Assets Total Liabilities & Equity

Q# 06: A Corporation is a holding company with four main subsidiaries. The percentage of its
business coming from each subsidiaries, and their respective betas, are as follows:

Subsidiary % of Business Beta

Electric utility 50% 0.7

Cable company 25% 0.9
Real estate 20% 1.3
International / special projects 5% 1.5

a) What is the holding company’s beta?

b) Assume that the risk-free rate is 6 percent and the market risk premium is 5 percent. What is
the holding company’s required rate of return?