Name _______________________________________

Section________________ Roll Number ____________

1. You are 35 years old today and are considering your retirement needs.
You expect to retire at age 65 and your actuarial tables suggest that you
will live to be 95. You want to move to Mussoorie when you retire. You
estimate that it will cost you Rs 3,000,000 to make the move (on your 65th
birthday) and that your living expenses will be Rs 300,000 a year (starting
at the end of year 66 and continuing through the end of year 95) after that.
Assume a discount rate of 10%.

a. How much will you need to have saved by your retirement

date to be able to afford this course of action?
b. You already have Rs 500,000 in savings. If you can invest
money, tax-free, at 8% a year, how much would you need to
save each year for the next 30 years to be able to afford this
retirement plan?
2. ABCom Ltd’s share has a beta of 1.5. The 10 year RBI bond rate is 8%.
The historical return on the market portfolio has been 16%.

a. Estimate the expected return on the stock for an investor in

the company.

b. If the previous dividend per share of ABCom was Rs 2.00 and

the company’s dividend and earnings are expected to grow at
8%, what should be the intrinsic value per share of the stock?
3. Trueman Ltd has Rs 2.7 billion worth of bonds outstanding and the market
value of equity is Rs 3.5 billion. The current corporate tax rate is 35%. If
the company’s shareholders expect a return of 15% and the company has
issued fresh bonds today at 12% annual coupon, what is the weighted
average cost of capital of the company ?