INVESTMENT AND RISK MANAGEMENT

TUTORIAL QUESTIONS 1 LECTURE 3, 4 &5.

1. Gloric Impex Bridal is trading at Ghs 25per share. There are 250
million shares outstanding. What is the market capitalization of Gloric
Impex Bridal?

2. Gloric Impex Bridal Company recently reported net profit after tax of
Ghs15.8million. it has 2.5 million shares of common stocks
outstanding and pays preferred dividend of Ghs1 million per year
i. Computes the firm’s earnings per share (EPS).
ii. Assuming that the stocks currently trades at Ghs60 per share
determine what the firm’s dividend yield would be if it paid
Ghs2 per share to common stocksholders.
iii. What would the firm’s dividend payout ratio be if it paid Ghs
2 per share in dividends?

3. On January 1, 2008, an investor bought 200 shares of Fanmilk limited

for Ghs50 per share. On January 3, 2009, the investor sold the stock
for Ghs55 per share, the stock paid quarter dividend of Ghs 0.25 per
share. How much in Ghs did the investor earn on this investment, and
assuming the investor is in the 33%tax bracket, how much will she
pay in income taxes on this transaction?

4. Consider the following information about Truly Good Coffee Inc.

Total assets Ghs 240 million
Total debt Ghs 115 milllion
Preferred Stock Ghs25 million
Common stockholders’ equity Ghs 100 million
Net Profit after tax Ghs 22.5 million
Number of Preferred stock outstanding I million Shares
Number of Common stocks outstanding 10 million shares
Preferred dividend paid Ghs 2per share
Common dividend paid Ghs 0.75 per share
Market price of the Preferred stock Ghs 30.75 per share
Market Price of common stocks Ghs 25.00 per share

Use the information above to find the following’

i. the company’s book value

Gloria Clarissa Dzeha Dr. Mrs

ii. its book value per share
iii. the stocks earnings per share
iv. the dividend payout ratio
v. the dividend yield on the common stocks
vi. the dividend yield on the preferred stocks

5. What is fundamental analysis? Does the performance of a company

have any bearing on the value of its stocks? Explain

6. What is ratio analysis? Describe the contribution of ratio analysis to

the study of a company’s financial condition and operating results.

7. A 6%, 15year bond has 3 years remaining on a deferred call feature

the call premium is equal to one year interest. The bond is currently
priced in the market at Ghs 850. What is the issues current yield?

8. A 12%, 20 year bond is currently trading at Ghs 1,250, what is the

current yield?

9. Zack buys a 10% corporate bonds with a current yield of 6%, how
much did he pay for the bond?

10. A certain 6% annual pay convertible bonds maturing in 20years

is convertible at the holder’s option into 20 shares of common stock.
The bond is currently trading at Ghs800. The stock which pays 75
pesewas a share in annual dividend is currently priced in the market
at Ghs35 a share.
i. What is the bonds conversion price?
ii. What is the bonds conversion ratio?
iii. What is the conversion value of the issue? What is its conversion
parity?
iv. What is the conversion premium in dollars and as a percentage?
v. What is the payback period?
vi. If comparably rated nonconvertible bonds sell to yield 8%, what is
the investment value of the convertible?
11. What does the term Duration mean to bond investors, and how
does the duration of a bond differ from its maturity?
12. Describe the process of bond portfolio immunization, and
explain why an investor would want to immunize a portfolio, would
you consider portfolio immunization a passive investment approach
comparable to a buy-and-hold approach? Explain.

Gloria Clarissa Dzeha Dr. Mrs

 13. Two bond have par values of Ghs 1000, one is a 5%, 15-year
bond priced to yield 8%. The other is a7.5%, 20-year bond price to
yield 6%. Which of these two has the lower price?

14. Using semiannual compounding, find the price of the following

bonds
i. A 10%, 15-year bond priced to yield 8%
ii. A 7%, 10-year bond priced to yield 8%
iii. A 12%, 20-year bond priced to yield10%.

15. Using the annual compounding, find the yield-to-maturity for

each of the following bonds;
i. A 9.5%, 20 year bond priced at Ghs 957.43
ii. A 16%, 15-year bond priced at Ghs 1684.76
iii. A 5.5%, 18year bond priced at Ghs 510.65

Gloria Clarissa Dzeha Dr. Mrs