What difference it would make in terms of return available and which option is

What difference it would make in terms of return

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What difference it would make in terms of return available and which option is preferable? Answer (i) Returns for the year: (All changes on a Per -Unit Basis) Change in Price: Rs.9.45 ʹ Rs.8.75 = Re.0.70 Dividends received: Re. 0.75 Capital gains distribution Re. 0.60 Total reward Rs. 2.05 Holding period reward : % 43 . 23 75 . 8 . Rs 05 . 2 . Rs (ii) When all dividends and capital gains distributions are re-invested into additional units of the fund @ (Rs. 8.65/unit) Dividend + Capital Gains per unit = Re.0.75 + Re 0.60 = Rs. 1.35 Total received from 300 units = Rs.1.35 x 300 = Rs.405/-. Additional Units Acquired = Rs.405/Rs.8.65 = 46.82 Units. Total No. of Units = 300 units + 46.82 units = 346.82 units. Value of 346.82 units held at the end of the year
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Compendium: Capital Market Analysis & Corporate Laws The Institute of Cost and Works Accountants of India Page 29 = 346.82 units x Rs.9.45 = Rs.3277.45 Price Paid for 300 Units at the beginning of the year = 300 units x Rs.8.75 = Rs.2,625.00 Holding Period Reward Rs.(3277.45 ʹ 2625.00) = Rs.652.45 % of Holding Period Reward % 85 . 24 00 . 2625 . Rs 45 . 652 . Rs Conclusion: Since the holding period reward is more in terms of percentage in option-two i.e., reinvestment of distributions at an average NAV of Rs.8.65 per unit, this option is preferable. Question 6 Mr. X on 1.7.2008, during the initial offer of some Mutual Fund invested in 10,000 units having face value of Rs.10 for each unit. On 31.3.2009 the dividend operated by the M.F. was 10% and Mr. X found that his annualized yield was 153.33%. On 31.12.2010, 20% dividend was given. On 31.3.2011 Mr. X redeemed all his balance of 11,296.11 units when his annualized yield was 73.52%. What are the NAVs as on 31.3.2009, 31.12.2010 and 31.3.2011? Answer Yield for 9 months = (153.33 x 9/12) = 115% Amount receivable as on 31.03.2009 = 1,00,000/- + (1,00,000x 115%) = Rs.2,15,000/- Therefore, NAV as on 31.03.2009 = (2,15,000-10,000)/10,000= Rs.20.50 Therefore, units as on 31.03.2009 = 10487.80 i.e., (2,15,000/20.50) Dividend as on 31.03.2010 = 10,487.80 x 10x0.2 = Rs.20,975.60 Therefore, NAV as on 31.03.2010 = 20,795.6/(11,296.11- 10,487.80) = Rs.25.95 NAV as on 31.03.2011 = 1,00,000 (1+0.7352x33/12)/11296.11 = Rs.26.75
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Compendium: Capital Market Analysis & Corporate Laws The Institute of Cost and Works Accountants of India Page 30 3 INDIAN STOCK MARKET Question 1 Following information is available in respect of dividend, market price and market condition after one year. Market condition Probability Market Price Dividend per share Rs. Rs. Good 0.25 115 9 Normal 0.50 107 5 Bad 0.25 97 3 The existing market price of an equity share is Rs. 106 (F.V. Re. 1), which is cum 10% bonus debenture of Rs. 6 each, per share. M/s. X Finance Company Ltd. had offered the buy-back of debentures at face value. Find out the expected return and variability of returns of the equity shares. And also advise-Whether to accept buy back after? Answer The Expected Return of the equity share may be found as follows: Market Condition Probability Total Return Cost (*) Net Return Good 0.25 Rs. 124 Rs. 100 Rs. 24 Normal 0.50 Rs. 112 Rs. 100 Rs. 12 Bad 0.25 Rs. 100 Rs. 100 Rs. 0 Expected Return = (24 0.25) + (12 .050) + (0 0.25) = 12% 100 100 12 The variability of return can be calculated in terms of standard deviation. V SD = 0.25 (24 ʹ 12) 2 + 0.50 (12 ʹ 12) 2 + 0.25 (0 ʹ 12) 2 = 0.25 (12) 2 + 0.50 (0) 2 + 0.25 ( ʹ 12) 2 = 36 + 0 + 36 72 SD SD = 8.485 or say 8.49 (*) The present market price of the share is Rs. 106 cum bonus 10% debenture of Rs. 6 each; hence the net cost is Rs. 100 (There is no cash loss or any waiting for refund of debenture amount).
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Compendium: Capital Market Analysis & Corporate Laws
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