Corporate Finance Practice Worksheet 3

PGDM (A & B)
Date: 19/12/22

1. An investor is considering the purchase of a five-year ₹1,000 par value bond, bearing a
nominal rate of interest of 7% per annum. The investor’s required rate of return is 8%. What
should he be willing to pay now to purchase the bond if it matures at par?

2. IDBI sold a bond for ₹12,500 with a face value of ₹5,00,000 with a maturity of 30 years.
The current market yield on similar bonds is 9%. Find out the present value of this bond.

3. Suppose a 10%, ₹1,000 bond will pay ₹100 annual interest into perpetuity? What would
be the value of the bond if the market yield or interest rate were 15%?

4. An investor is considering the purchase of 12 year, 10% ₹100 par value preference share.
The redemption value of preference share on maturity is ₹120. The investor’s required rate
of return is 10.5%. what should he be willing to pay for the share now?

5. A company has issued ₹100 irredeemable preference shares on which it pays a dividend
of ₹9. A similar type of preference share is currently yielding a dividend of 11%. What is the
value of preference share?

6. An investor intends to buy a share and wishes to hold it for one year. If he expects the
share to pay a dividend of ₹2 from this year, and would sell the share at an expected price of
₹21 at the end of the year and his required rate of return is 15%, how much should he pay
for the share today?

7. A company expects to pay dividend of ₹2 this year which is expected to grow at 5%

constantly. His required rate of return is 10% and he expects to sell the share at ₹25.53 after
5 years. What would be the current value of the share?

8. A company paid a dividend of ₹3.70 in the previous year. the dividends in the future are
expected to grow perpetually at a rate of 6%. Find out if market interest rate is 12%?