Accounts-AW410 Online Services

 

PART II

 
Answer 2 of the following questions.
 
1. The company BETARIX is an investment company (actually like a mutual fund) that has the following balance sheet: BETARIX Ltd
 

Assets Liabilities

 
• Bonds for 100.000 EUR (market value) a 100% equity financed © 1000 units of stocks of Valuax Ltd (500 units of stocks issued)
 
– The bonds owned by Betarix Ltd are government bonds and their beta is for simplicity assumed to be zero. The duration of the bond is 4 years.
 
– Betarix also owns stocks of Valuax. Valuax is a company with an expected dividend of 10 EUR the next year. The expected growth rate of its dividends is 2% annually from the next year onwards. The markets risk-adjusted rate of return requirement for the Valuax stock is 8% p.a. The Valuax stock has a beta of 0.8.
 
1.) Compute the market value of one stock of Betarix. Also: what would its beta be?
(Hint: For the price of the Valuax stock, use the Gordon formula. For beta, use the rule on page 20, only this turn for the other side of the balance sheet.)
 
2.) Assume that interest rates in the economy go up by 1%. Prior to this, the bond yield was 4% and the rate-of-return requirement for the Valuax stock 8%. Now each of these goes up by 1%. Compute approximately what the percentage change in the market value of Betarix would be.
 
3.) Assume now that Betarix would instead be financed (on the liabilities side) both by equity and debt (50% each). Explain verbally how that would change your expectations concerning the expected return and risk of its stock?
 
2. Try to find the options that may be hidden in the following real-life situations A and B and identify whether you are the owner or writer of a call (C) or put (P) option. Describe also, if information given, whether the option is in-the-money or out-of-the-money, and how the existence of the option affects what you are willing to pay for the instrument / your willingness to accept the deal as compared to a situation where there would not be an
option imbedded.

How it Works

How It works ?

Step 1:- Click on Submit your Assignment here or shown in top menu of every page and fill the quotation form with all the details. In the comment section, please mention product code mentioned in end of every Q&A Page. You can also send us your details through our email id tutorspedia.expert@gmail.com with product code in the email body. Product code is essential to locate your questions so please mentioned that in your email or submit your quotes form comment section.

Step 2:- While filling submit your quotes form please fill all details like deadline date, expected budget, topic , your comments in addition to product code . The date is asked to provide deadline.

Step 3:- Once we received your assignments through submit your quotes form or email, we will review the Questions and notify our price through our email id. Kindly ensure that our email id tutorspedia.expert@gmail.com  must not go into your spam folders. We request you to provide your expected budget as it will help us in negotiating with our experts.

Step 4:- Once you agreed with our price, kindly pay by clicking on Pay Now and please ensure that while entering your credit card details for making payment, it must be done correctly and address should be your credit card billing address. You can also request for invoice to our live chat representatives.

Step 5:- Once we received the payment we will notify through our email and will deliver the Q&A solution through mail as per agreed upon deadline.

Step 6:-You can also call us in our phone no. as given in the top of the home page or chat with our customer service representatives by clicking on chat now given in the bottom right corner.

Features

Features for Assignment Help

 Zero Plagiarism
We believe in providing no plagiarism work to the students. All are our works are unique and we provide Free Plagiarism report too on requests.
Relevancy
We believe in providing perfect, relevant and 100% accurate solutions to the student as per questions asked. All our experts are perfect in providing that so as to give unique experience to the students.
Three Stage Quality Check
We are the only service providers boasting of providing original, relevant and accurate solutions. Our three stage quality process help students to get perfect solutions.
100% Confidential
All our works are kept as confidential as we respect the integrity and privacy of our clients.

Related Services

 

Answer also question C.

 
© A. You have one year ago borrowed money from a bank at a fixed interest rate of 6%. The remaining borrowing time is 9 years. The loan is paid back annually (in equally large amortizations) together with the annual interest payment. However, if you want, you can repay the loan sooner (amortize it faster) than in 10 years at no additional cost. The current long-term (« 9 y.) bond yield is 5.2%.
 
B. You are an owner of a convertible bond that can, within 2 years, be converted to 5 stocks in Nokia. The current market value of the bond is EUR 1000, and the price of one Nokia stock is EUR 21,70. ® C. Assume that you are the owner of a call option on the Nokia stock.
 
Assume further that Nokia has chosen one of the two alternative network standards for the future, and is the only one producing this one. Many believe that both networks could co-exist for a reasonable time period, and Nokia is assumed to get a 50% market share worldwide. Suppose that suddenly a group of central country leaders decide that the network question will be solved once and for ail, and only one standard will be accepted worldwide. Nokia’s standard has a 50% chance of being selected as the chosen one. How would this affect the price of your Nokia call option?

product code: Accounts-AW410

Looking for Accounts-AW410,please click here

Summary