KASBIT

Fall 2023
Assignment 2
Course Supervisor: Dr. Israr Ahmed Date of Assignment: May 26, 2024
Course: Finance Date of Submission: June 9 , 2024
Class: BBA Max. Marks: 15
Name: _______________________ ID No._____________
_______________________________________________________

Instructions:
Write your Name and ID in a proper manner.

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Question 1: Suppose you are the money Manager of Rs.8 million investment funds. The fund
consists of FOUR stocks with the following investment and betas:

Stock Investment Beta

X Rs.800,000 1.20
B 1200,000 0.5
Z 2,000,000 1.50
W 4,000,000 1.75

Required: If the market required rate of return is 12% and the Risk-free rate is 5%, calculate the
following:
a) What is portfolio beta?
b) What is the fund’s required rate of return?
c) What is the required rate of return of Stock-W?

https://www.chegg.com/homework-help/questions-and-answers/suppose-money-manager-432-
million-investment-fund-fund-consists-four-stocks-following-inve-q182612521

Question 2: Robert Balik and Carol Kiefer are senior vice-presidents of the Mutual of Chicago
Insurance Company. They are co-directors of the company’s pension fund management division,
with Balik having responsibility for fixed income securities (primarily bonds) and Kiefer being
responsible for equity investments. A major new client, the California League of Cities, has
requested that Mutual of Chicago present an investment seminar to the mayors of the represented
cities and Balik and Kiefer, who will make the actual presentation, have asked you to help them.
Because the Walt Disney Company operates in one of the league’s cities, you are to work Disney
into the presentation.
1. What are the key features of the bonds?
2. How is the value of an asset whose value is based on expected future cash flows
determined?
3. What is the value of a 10-year, Rs.1,000 par value bond with 10% annual coupon if its
required rate of return is 10%
https://www.chegg.com/homework-help/questions-and-answers/d-bond-s-value-
determined-value-10-year-1-000-par-value-bond-10-annual-coupon-required-ret-
q50409737

4. What is YTM on 10-year,9% annual coupon bonds, with Rs.1,000 par value and sells for
Rs.1134.20?

https://chegg.com/homework-help/questions-and-answers/1-yield-maturity-10-year-9-
annual-coupon-1-000-par-value-bond-ks-sells-88700-sells-1134-20-q101957927

5. What is the relationship between Coupon interest, YTM and Prices?

6. What is interest rate risk? Which bond has more interest rate risk, 3-year bond OR 10-year
bond?
7. Find the value of 10-year, semiannual, 10% coupon bond if market interest rate is 14%.
The remaining maturity of this bond is 8 years.