Risk and Return – Stock Valuation, Risk Management

Assignment Help:
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.

Related Discussions:- Risk and Return – Stock Valuation

Task for report and appendices, The task for Report & Appendices The ma...

The task for Report & Appendices The main aim of the appendices is to show a series of graphical and descriptive material which demonstrate your technical knowledge of the proc

Explain mechanisms of financial system for risk transferred, Explain about ...

Explain about the mechanisms of financial system for risk to be transferred. Financial systems also give mechanisms for risk to be transferred. For instance insurance contracts

Determine the optimum prices and outputs, The basic question in this case i...

The basic question in this case is whether Jetliners and Acme Airline should work together to develop a new super sized airframe or should each company seek to develop its own vers

Trade Finance and Risk, The risks in the transaction seem to be very broad ...

The risks in the transaction seem to be very broad and encompassing. Can Engineering Tech effectively protect its interests and assure payment?

GRACH, (i) Calculate the unweighted average daily variance for the time ser...

(i) Calculate the unweighted average daily variance for the time series. Explain any assumptions or simplifications you have made, and the working for each step.

Risk neutral approach, First's current stock price is $260. The price may r...

First's current stock price is $260. The price may rise to $300 or fall to $170 in one month. The risk-free interest rate is 18% per year. a. Using the replication portfolio app

Describe the term ecosystem, Question: (i). Describe the term ‘ecosyste...

Question: (i). Describe the term ‘ecosystem' (ii). What are the major ecosystems in the tropical marine environment. (iii). State and describe four main ecological/eco

Execution of a risk analysis, Question: (a) What are the various option...

Question: (a) What are the various options to mitigate risks in an Information Security Management System (ISMS)? For each option specify an instance where it can be used.

Determine a process for communicating, Determine a process for communicatin...

Determine a process for communicating, resourcing and managing risk management strategies Establish a communication plan to implement the risk management framework that has been

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd