Mid Term Examination Fall - 2020

Subject: Financial Management & Application Day:

Instructor(s): Dr. Asad Rind/Dr Riaz/Meer Rujaib Date:

Program: MBA Time Allowed: 120 mins

No. of Students: Max. Marks: 25

Section (if Any): Time Slot:

Department of Business Administration
Mid Term Exam Fall - 2020
Instructions
Please follow the instructions carefully:
1. Attempt all questions. You can give your answers in handwritten or in type-written form as per
your convenience.
2. If you are giving handwritten answers then you must use A4 paper sheet with sufficient margin
on left and right side. For the word file Use 12 pt. font size and Times New Roman font style along with
1-inch page margins.
3. You are required to solve and upload your answer file within the given deadline. The deadline to
upload answer file on your respective Blackboard folder is 20th Nov 2020 before 21:00
4. Please make sure to mention your name and your registration number on top of the first page of
your answer file.
5. Solve the questions in sequence as given in the assignment paper.
6. After solving all the answers, make the serial numbering on all your answer sheets.
7. After completing assignment, you are required to make its Snapshot (or Scan) and make its single
.pdf file by arranging all your sheets in sequence.
8. Make the file name as per given format: Subject Name (last four digits of your Registration
Number) e.g. Financial Management and Applications (2342).
9. You must avoid any blur or dull pictures. It is recommended to use black colour pen to write your
answers.
10. Do not use pencil.
11. Recheck your answers before the submission on Blackboard to correct any content or language
related errors.

Instructor’s Signature
Question-1. (5 marks)
Calculate the value where you find question mark “?”. All values should be determined up to
four decimal places

  Time Value of Money  

I (interest Compounde
Q1 PV r n FV amount) d
10.50
a 50,000 % 5 years ? N/A Monthly
15 2,500,00
b ? 9% years 0 N/A Quarterly
140,00
c 0 ? 3 years 200,000 60,000 Semi annual
200,00
d 0 7.50% ? 400,000 200,000 Quarterly
10
e ? 12% years N/A 500,000 yearly

Question-2. (2 marks)
Mr. Shariq owes Mr. Farooq Rs. 7000 due in 5 years and Rs. 15,000 in 7 ½ years. How much
should Mr. Shariq pay at the end of 6 years which may be acceptable to Mr. Farooq if money is
worth 8% compounded semi-annually?
Question-3. (2 marks)
Mr. Ghani wants to deposit his savings of Rs. 50,000 in a bank which offers 8% interest
compounded semi-annually to withdraw Rs. 2,500 at the end of each six months from the date of
deposit. How many withdrawals will he or his heir (in case of his death) be able to make before
the entire amount is exhausted?
Question-4. (1 mark)
Find the present value of KTC share which is expected to earn Rs. 10.50 every six months, if
money is worth 8% compounded annually.
Question-5. (5 marks)
Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital
structure consists of 25% debt and 75% equity; however, the CEO believes that the firm should
use more debt. The risk-free rate, Rf, is 5%; the market risk premium, RPM, is 6%; and the
firm’s tax rate is 40%. Currently, Cyclone’s cost of equity is 14%, which is determined by the
CAPM. What would be Cyclone’s estimated cost of equity if it changed its capital structure to
50% debt and 50% equity? based on cost of equity estimations, Should the firm change its
capital structure?
Question-6. (10
marks)
Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three
attractive stocks and want to create a portfolio investment in these three stocks. The details of the
stocks are given below:
Company name Volatility Weight in Correlation with the
(Standard deviation) Portfolio market portfolio
Meezan Bank Ltd 12% 0.25 0.40
Lucky Cement Ltd 25% 0.35 0.60
KE Ltd 13% 0.40 0.50

The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate
based on central bank’s discount rate is 3%. (1.5 marks each)
a. Calculate each of the stock’s expected return and risk (beta) as compared to the market (2.5
marks).
b. What should be the expected return of the portfolio based on values calculated in part a (2.5
marks).
c. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio?
(2.5 marks)
d. Using the values from part c, can you calculate the expected return of the portfolio? Is it
similar to your answer in part b? Why or why not? (2.5 marks)

************* Good Luck *************