Task 1 This task requires you to identify the various elements/factors that affect the valuation of bonds and shares. Please note that you must segregate the factors for bond and shares separately – minimum four factors for each. You are not only expected to identify the direct factors (the interest rate for example) but also the indirect factors (i.e. the various factors which affects the interest rate itself). To simplify your discussion, you may choose a particular industry to answer this requirement. If you use any articles, textbooks, journals etc. to support your decisions, you must use in-text referencing to properly acknowledge the work of the original author. The preferred referencing style is the Harvard referencing style (author-date). However, you are not expected to reference the formulae.Task 2 (Bond valuation)A. Robertsons Ltd is planning to expand its specialty stores into five other states andfinance the expansion by issuing 15-year zero coupon bonds with a face value of$1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds willpay semiannually, what will be the price at which you will be willing to purchasethese bonds?B. Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon.The current market rate for similar bonds is 9 percent. Assume semiannual couponpayments. What is the maximum price that should be paid for this bond? (3 marks)C. Shawna Carter wants to invest her recent bonus in a four-year bond that pays acoupon of 11 percent semiannually. The bonds are selling at $962.13 today. If shebuys this bond and holds it to maturity, what would be her yield? (3 marks)D. Huan Zhang bought a $1,000 10-year bond that pays 8.25 percent semiannually for$911.10. What is the yield to maturity on this bond? (3 marks)E. Jorge Cabrera paid $980 for a 15-year bond 10 years ago. The bond pays a coupon of10 percent semiannually. Today, the bond is priced at $1,054.36. If he sold the bondtoday, what would be his realised yield?Task 3 A. Priority Shift Ltd is expected to grow at a constant rate of 9 percent. If the company’snext dividend is $2.75 and its current price is $37.35, what is the required rate ofreturn on this share?B. Denyer & Grant Ltd., is a fast growth share and expects to grow at a rate of 25 percentfor the next four years. It then will settle to a constant-growth rate of 10 percent. Thefirst dividend will be paid out in year 3 and will be equal to $5.00. If the required rateof return is 18 percent, what is the current price of the share? (4 marks)C. Stag Company will pay dividends of $4.75, $5.25, $5.75, and $7 for the next fouryears. Thereafter, the company expects its growth rate to be at a constant rate of 7percent. If the required rate of return is 15 percent, what is the current market price ofthe share?D. The Burleigh Basin Surf Co. has issued perpetual preference shares with a $100 parvalue. The company pays a quarterly dividend of $2.60 on this share. What is thecurrent price of this preference share given a required rate of return of 12.5 percent?E. Each quarter, Transam Ltd pays a dividend on its perpetual preference share. Today,the share is selling at $83.45. If the required rate of return for such shares is 10.5percent, what is the quarterly dividend paid by this company?
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