Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis – I - Question Paper

17.57
1.86
9.43

Total
40.91



Value =

Value =

V5 = 358.03 + 116.03 = 474.06

Therefore current value of company = 474.06/1.1335 + 40.91 = Rs.294.82.





Or

Year
Growth rate
DPS
D rate
PV


0

6.25




1
22
7.93
1.133
7.00


2
22
9.67
1.284
7.54


3
22
11.80
1.454
8.12


4
22
14.40
1.648
8.74


5
22
17.57
1.867
9.41


6
19.20
20.94
2.115
9.90


7
16.40
24.37
2.397
10.17


8
13.60
27.69
2.715
10.20


9
10.80
30.68
3.077
9.97
81.04(Dividend total)

10
8.00
33.13
3.077
10.77
203.1797

(Terminal value)

Share price as on 31st March 2006
284.22


< TOP >

3. a.

Years
0
5
10
15
20
25

Amount
2700
5000
10000
20000
40000
80000

1.06n

1.3382
1.7908
2.3966
3.2071
4.2919

Indexation

3613.21
4835.29
6470.71
8659.27
11588.05

Redemption - indexation

1386.79
5164.71
13529.29
31340.73
68411.95

[Redemption - indexation] Tax rate

416.04
1549.41
4058.79
9402.22
20523.58

Post tax redemption value

4583.96
8450.59
15941.21
30597.78
59476.42

Post tax yield

11.17
12.09
12.57
12.91
13.17


Post-tax yield to maturity of such a bond is the value of r in the subsequent equation:

Cost of acquisition (1+r)n = Post-tax redemption value

Yield for five years

2700 (1+r)5 = 4583.96*

r = 11.17%.

*Post tax redemption value can be computed as follows:

Redemption value – [Redemption value – Indexed cost of acquisition] Tax rate

= 5000 – [5000 – 2700 (1.06)5] 0.30

= 5000 – 416.04

= 4583.96.

b.

Particulars
5
10
15
20
25

Post tax yield (in %)
11.17
12.09
12.57
12.91
13.17

% change in yield in every succeeding maturity (in %)

Earning:   Approval pending.