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

Part A
10% of the face value will be converted into 1 equity share

on allotment

Part B
20% of the face value will be converted into 2 12 % preference

shares of face value Rs.100 every at the end of sixth year

Part C
40% of face value will be redeemed at the end of 4th, fifth and sixth year

in proportion of 1:1:2

Part D
The balance 30% face value will have a warrant attached to it


Part D, can be exchanged for 1 equity share at the end of the 2nd year or the investor can retain part D and let the warrant lapse. In the later case, part D will be redeemed at the end of sixth year.

The company has grown by 21% in the last year. From the current year onwards, the growth rate will decline linearly and stabilize at 7% at the end of seventh year. Company believes in keeping its payout ratio constant at 50%. Preference shares have a time to maturity of five years.

Mr. Mukesh Modi has asked you to determine whether it is desirable to invest in the debentures and the choice he should select for Part D. presume that the equity shares will be traded at the intrinsic value at the end of the 6th year and the Mr. Mukesh disowns all the equity holdings at the end of 6th year. The needed rate for Mr. Mukesh is 14%.

(11 marks) < ans >

5. The price of the Reliance Capital Ltd. as on first August 2005 is 451.55. provided beneath are the closing prices of Reliance Capital Ltd. during the month of July 2003 and 2005.

DD/MM/YY
Close
DD/MM/YY
Close

1-Jul-03
70.20
1-Jul-05
376.35

2-Jul-03
72.80
4-Jul-05
378.80

3-Jul-03
74.25
5-Jul-05
379.40

4-Jul-03
74.30
6-Jul-05
408.50

7-Jul-03
72.30
7-Jul-05
394.30

8-Jul-03
71.55
8-Jul-05
404.15

9-Jul-03
69.70
11-Jul-05
402.20

10-Jul-03
70.05
12-Jul-05
406.40

11-Jul-03
70.05
13-Jul-05
410.70

14-Jul-03
71.85
14-Jul-05
399.50

15-Jul-03
69.70
15-Jul-05
399.30

16-Jul-03
71.80
18-Jul-05
404.45

17-Jul-03
73.00
19-Jul-05
410.40

18-Jul-03
71.60
20-Jul-05
408.80

21-Jul-03

Earning:   Approval pending.