Interest amount = 1000*6% = 60 taka

B0 = 60(PVIFA, Kd, 5) + Bn(PVIF, Kd, 5)

883.40 = 60(PVIFA, Kd, 5) + 1000(PVIF, Kd, 5)

Kd= 8%
B0 = 60(PVIFA, 8%, 5) + 1000(PVIF, 8%, 5)
= 920.58

Kd= 10%
B0 = 60(PVIFA, 10%, 5) + 1000(PVIF, 10%, 5)
= 848.46

8+[ (920.58- 883.40)/(920.58-848.46)] *2

= 9.03%

3.2 Bond face = 1000

Interest Rate = 8%

Year Balance Principal Interest@8% Installment PVIF@7% PV

remaining Repaid
1 1000 200 80 280 0.935
2 800 200 64 264 0.873
3 600 200 48 248 0.816
4 400 200 32 232 0.763
5 200 200 16 216 0.713
1025.67

3.4
Given That,

Next year Dividend, DIV1= 7

Growth Rate, g = 6%
Retention ratio, b = 30%
Capitalization rate, Ke = 10%
1. b= 30%
Dividend payout ratio= 1- 0.30. = 0.70 = 70%

Div 1 = EPS(1-b)
= 7 = EPS(1-0.30)
EPS= 10

b). Growth = retention ratio * ROE

= 0.06 = 0.30* ROE
= ROE = 0.06/0.30
= 0.2= 20%

c). At 6% growth
Po = Div1/ (ke-g)
= 7/(0.10-0.06)

=175
At zero growth
Po = EPS/ ke
= 10/0.10
= 100
Value of growth opportunity = 175 -100
= 75 taka

Problem 3.6:
P0= 60
Div0 = 4
Ke =12%
G= ?

Po = Div1/(ke-g)
= Div0(1+g)/ (ke-g)
60 = 4(1+g)/ 0.12-g

60 = 4+4g/0.12-g

7.2- 60g = 4 + 4g
-60g -4g = 4 -7.2
-64g = -3.2
G = 5%

Problem 13:
Div 1 = 3
P1 = 53
Ke= 10%

P0 = Div1+p1/ (1+ke)
= 3 + 53/ (1.10)
= 50.91
As the current selling price is lower than the expected price, we should buy it.

b) 3+ (53-50) / 50
6/50
= 12%

Problem 15:

Div0 = 1.5
g= 10%
ke= 12%

P0 = Div1/ (ke-g)
= Div0(1+g)/ (ke-g)
= 1.5(1.10)/ (0.12- 0.10)
= 82.5

Problem 3: a) Maturity period, n = 10

Interest = 140
Maturity value, Bn= 1000
Kd = 12%

B0 =. Interest ( PVIFA , 10, 12%) + Bn(PVIF, 10, 12%)

= 140(5.650 ) + 1000( 0.322 )

= 1113

Quiz exercise 5
Interest rate , I = 10%
Face value = 1000
Amount of interest = 100

Maturity , n = 8 years
Current selling price , B0 = 900

900 = 100(PVIFA, 8, kd)+ 1000(PVIF, 8, kd)

At 12%
100(PVIFA, 8, 12%)+ 1000(PVIF, 8, 12%)
= 900.80
At 13%
100(PVIFA, 8, 13%)+ 1000(PVIF, 8, 13%)
= 855.9

12+ [( 900.80 -900)/ (900.80 – 855.9)]*1

= 12.02%