Risk and Return – Stock Valuation, Risk Management

The Case:
Recently after graduating from Local Business College (LBC), you have started your
own investment consultancy firm – Prudent Consultants (PC’s) to earn your
livelihood. Mr. Zain, a regular investor approaches you to get some financial advice
on different intended stocks. On the basis of his preliminary research, Zain is curious
in reaping the risk and returns associated with these stocks. For your convenience,
he has also brought necessary information regarding these stocks along with him:
 MAQ Motors’ possible returns on investment of Rs.10,000 in common stock,
over the coming year is as follows:
Economic conditions,Probability (p),Returns (r ) in Rupees
Recession,0.20, - 1000
Normal,0.60,1500
Boom,0.20, 2500
 Wahid Consultant Company, on its stock, is currently paying Rs. 2 per share
as dividend, which is expected to grow at a constant rate of 7 percent per year.
 Zahoor Company’s stock Y is expected to pay a dividend of Rs. 57; while,
stock Z is expected to pay a dividend of Rs. 54 in the upcoming year. The
expected growth rate of dividends for both stocks is 7%.
Ideal Contractors’ common stock (a very long term investment) is also
available. Mr. Zain’s required return on this investment (based on risk) is 25%
(rCE). The present dividend offered by the Company is Rs 10; while, the par
value of each stock is Rs 100.
Based on provided information:
a) You need to calculate the expected return, standard deviation of returns and
coefficient of variations for MAQ Motors’ investment opportunity. [7 marks]
b) You are expected to analyze the price of Wahid Consultant Company’s stock
in case Mr. Zain requires a rate of return of 16 percent to invest in this stock
with this degree of riskiness.
c) You need to identify which stock of Zahoor Company has higher intrinsic
value; in case, Mr. Zain wishes to earn a return of 9% on each stock.
[5 marks]
You are supposed to determine the dividend yield pricing for common stock
of Ideal Contractors using both: ‘Zero Growth Pricing’ plus ‘Constant Growth
Pricing’ Models (where: g=10%). Also compare & interpret the result.
Posted Date: 1/7/2013 3:31:34 AM | Location : Pakistan







Related Discussions:- Risk and Return – Stock Valuation, Assignment Help, Ask Question on Risk and Return – Stock Valuation, Get Answer, Expert's Help, Risk and Return – Stock Valuation Discussions

Write discussion on Risk and Return – Stock Valuation
Your posts are moderated
Related Questions
Step 1: Stock Data: Choose four stocks, 2from the Dow Jones Industrial Average (DJIA 30) and 2other stocks of your choice.Download, import, or copy and paste the monthly price info

Question: Under Section 6 of the Occupational Safety and Health Act 2005, employers have a statutory duty to prepare and keep revised a written statement of their safety and he

Bull-Bear Market Risk This risk arises from the variability in the market returns resulting from alternating bull and bear market forces. Ø when security index rises fair

Evaluate risk management models • ERM approach • ISO31000:2009 • M_O_R Framework • GRC Capability Model

#question.Price a European call and put option using explicit, implicit and cranck nicholson methods in Matlab or R.

Determine about the Market Risk Variability in a security's returns resulting from fluctuation in aggregate market is called market risk. Market risk is sometimes used synon

explain the risk involves in swap business

Question 1: (a) What are the distinct types of assets under which derivatives can be based upon? (b) Give at least 5 risks that justify the existence of derivatives? Endorse

There are 5 primary steps in assessing risk in the workplace wrt to H&S, identify 3 and discuss the what actions should be taken to manage or negate the risks posed - The sect

Question 1: (i) Define the following by giving an example: (a) Systemic risk (b) Diversifiable risk (ii) List and describe briefly the different types of ri