Valuation of Bond and
Professor Banikanta Mishra, XIMB, XUB,
Visiting Professor, University of Turin,
CF of the Typical Bond
Time Value of Money
Professor of Finance
Xavier Institute of Management, XUB
Even in the absence of inflation,
even assets without risk
(say a guaranteed bank deposit)
give a return (call it the interest rate)
Risk and Return
Xavier Institute of Management,
Measuring Risk of Shares
Re = RF + RP (Risk Premium)
Risk Premium = (Magnitude of) Risk x RP per Unit
So, we must learn how to measure Risk.
We need to understand how investors g
Practice Assignment - 1
1. If the rate is 21%, what is the PV of Rs.550 to be received after six months?
2. Bank Banque claims to double your money in 70 months. What rate is it offering?
3. A bank which follows quarterly compounding
Name- Bindhya Basini Mishra
Sale value per unit
Direct labour @
Rs.20 per labour
An Introduction to Risk and Return
Professor Banikanta Mishra, WHU-Koblenz, Fall 2000
We learnt in stock-valuation that ks = RF + Risk Premium
Risk Premium should be equal to Amount of Risk x Risk-Premium per Unit
But, how do we measure risk?
CASE:1 Multi-product BEP
Man Ltd. manufactures and sells the following products as per sales mix given. The
operating costs are also given.
Operating cost as % of sales
Total budgeted sales for one month is Rs.10,00,000.
Profit under alternative costing methods
Manufactured during the period*
Unit selling price
Admin., Selling & Distribution cost (Fixed)
How much is the profit under total costing &
marginal costing if 10,0
Financial Markets History &
January March 2009
What is your Dollar Return if you buy a stock for $200 and sell it for $225 after a year?
Buy stock for $200
Sell stock for
1. Connect these two nations with respect to major global event held recently
2. Connect the following monuments with a character/person. (He will be in news
again in a few days, two weeks before being in news in US)
3. Members of the IAS/IFS/IPS are allo
1: South sudan and Kosovo new entrant nations in Rio Olympics 2016.
2: Robert Langdon/ Don Brown (Hint was Inferno hits the theatres on 14 Oct, while 28 Oct in US)
3. To get married to an officer of another (perhaps more plum) state cadre and request for
1. Connect the pictures and identify the mastermind behind that.
2. Victim of. was helped by John William and Warren Entsch.
3. Which ratio is undefined for a Debt free company.
4. Connect the pictures.
5. There is an image of Lord Ganesha on the
Kiss The Mirror
A middle school for girls was faced with a unique problem. A number of girls were beginning
to use lipstick and would put it on in the bathroom. That was fine, but after they put on their
lipstick they would press their lips to the mirrors
BOND AND BOND VALUATION
Question 1 : A bond with face value $1000 , coupon rate 12% with a maturity period of 10years is selling
at 950. What is the current yield.
Answer: Current Yield=Coupon/Current Price=120/950=12.63%
Question 2: $1000 par value bond
RISK AND RETURN PORTFOLIO THEORY
Question 1: Calculate the Portfolio Return and Variance when the investment is made in equal
proportion. Also calculate the proportion of investment which will minimize the variance.
State of the
INVESTMENT CRITERIA- NPV, MODIFIED NPV, IRR, MODIFIED IRR, PROFITABILITY INDEX, ACCOUNTING
RATE OF RETURN
Question-1: The cash flow of the project is as follows. Decide if the project is acceptable when the
discount rate is 10%
MACRS DEPRICIATION AND CASH-FLOW
Question : ABC Company purchased a computerized system at $160000 and follows 5-year MACRS
depreciation. What is the after tax cash flow if the computer system is sold in 4 th year at $10000 and also
if sold at $30000.
LOAN REPAYMENT INSTALMENT
Question : A loan of 20,000 is being repaid by 20 semi-annual payments, with the first payment made
one-half year after the loan. The first ten payments are K each and the final ten payments are K+200
each. Find K if the effectiv
AMORTIZATION OF A LOAN
Question : A loan of $22000 at an interest rate of 12% compounded annually to be repaid over 6 years
period. What is the EMI and show the amortization table.
CAPITAL RESTRUCTURING BREAKEVEN EBIT
Question : ABC company has 200000 shares and the current share price is $20. The company wants to
infuse debt of $1m. If the restructuring is expected to increase EPS , what is the minimum level of EBIT
PROFORMA FINANCIAL STATEMENT AND PROJECT CASH FLOW
Question : ABC Inc can sell 5000 cans of cold drinks per year $4 each and its cost price is $2.50. The
project has a life of 3 years and return expected is 20%. Fixed cost is $20000 per annum. Investment
EVALUATION THE CASH FLOW OF PROJECTS WITH UNEQUAL LIVES.
Question : Following are the three projected crop harvest of a farmer.
Project A: Initial Investment $100 , Return on 4th year $300
Project B: Initial Investment $100 , Return on 1 st year 150
PENSION FUND OBLIGATION SAMPLE SOLVED QUESTION
Question : Suppose you are a pension fund consultant to an organization and you are trying to estimate
the present value of pension obligation , which are expected as follows:
MACHINE REPLACEMENT STRATEGY
Question : A widget manufacturer operates two machines , each of which has a capacity of 1000 units a
year. They have an indefinite life and zero salvage value. The operating cost is $2 per widget. Widget is a
UNIFORM ANNUITY SERIES SAMPLE SOLVED QUESTION
Question : Bob bought a Honda Civic for 15000.The maintenance cost and the price of used Honda Civic
are as follows:
Price of the Honda Car
Climate Change Adaptation (CCA)
Climate change has become real and tangible, affecting peoples lives worldwide. It is a major
challenge for agriculture, food security and rural livelihoods. Agriculture is the sector most
vulnerable to climat
Elementary Education in India
- The Flight to Free and CempulseryiF Edueatlen Is a
Fundamental Flight with the passage oi RTE Act, 2009 8:
SSA has been hannenlsed with the HTE mandate.
' Assess te primary edueatlen Inereased to 99% and upper