Q-1. Explain the followings
a. Time Value of money and its importance in the field of Finance
b. The rule of 72 with an example
c. Annuity and perpetuity
Q-2. Solve the followings.
a. Mohammad Khalid is planning to invest $10,000 in a bank fixed deposit for 5 years. The bank promises to pay 9 percent interest rate on the deposit. What is the
future value of Mr. Khalid investment?
b. You are planning to buy a BMW sports car next year. You predict the car will cost $ 50,000. If your bank pays 5 percent interest on your savings, compounded annually, how much will you need to deposit today to have $50,000 after one year?
c. Suppose that a firm deposits $ 5,000 at the end of each year for four years at 6 percent rate of interest. How much will be the value of this annuity at the end of fourth year?
Q3. What are two components of a total holding period return? Mr. Jamil buys a stock for $30.00. After one year, the stock price becomes $ 35.00 and he receives a dividend of $0.80. Calculate his total return for the period.
Q4. Define expected return. From the following information calculate expected rate of return for the stock ‘X'.
|
Probability ( chances) of return
|
Return in % for X
|
|
.1
|
-8
|
|
.2
|
10
|
|
.4
|
8
|
|
.2
|
5
|
|
.1
|
-4
|
Q5. Discuss Capital Asset Pricing model (CAPM). Calculate the expected rate of return for a stock from the following information.
Risk free rate= 10%
Expected return on market=18%
Beta of the stock=1.35
4. Discuss diversifiable(unsystematic risk) and non-diversifiable risk( Systematic risk)
5. Discuss features of corporate bonds and also discuss types of bonds.