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beta of 3.0 ?
The beta coefficient of ABC is 1.4. Company
has maintained growth rate of 8% in
dividends and earnings. Last dividend per
share was Rs.4 per share. The return on
GOI securities is 10% while return on
market is 15%. Current price of share is
Rs.36. Would you advise buying this?
Scenario Analysis
A company is looking to invest 20 million in a
new project, for next ten years expects sales
of 18 million, variable costs 66.67%, fixed
costs 1 million, depreciation 2 million. Assume
no salvage value, tax rate 33.3%. What if
investment goes upto 24 million, sales drops
to 15 million, vc is upto 70% and fixed cost
increases to 1.3. What if investment goes
down to 18 million, sales increases to 21
million, vc comes down to 65% and fixed costs
decreases by 0.8.
Bond Management
The management of bond portfolios
historically passive. Buy and Hold
wherein investors objectives are
predictable returns, low management
costs, diversification. In recent years,
active strategy. People are searching
for incremental returns in the bond
market, thus, coupon rate, maturity ,
judgements based on yield curve
become important.
Duration
Weighted average measure of a bonds life. Time
periods in which bonds generate cashflows are weighted
according to relative sizes of PV of those flows.
Calculate Duration of a 7% coupon, 3 year bond priced
at 100. 2.81 years
Why should I calculate duration: because direct
relationship between bond duration and interest rate
senstivity helps in choosing those bonds which have
maximum sensitivity when managers are expecting a
decline in rates. Better measure of time structure of
bonds. If I think interest rates are going to fall 6 months
later, which bonds should I buy today ?
Cash Flows
Existing factory has enough space for one more
product. Plant & Machinery for Rs.400 million
required. This outlay will be over a period of
one year, 50% right in the beginning and 50%
in year 1. plant will commence operations after
one year. Requirement towards gross working
capital is 200 million. This is required after one
year once operations start. Proposed scheme of
financing is 200 million of equity, 200 million of
term loan, 100 million of working capital
advance, Rs.100 million of trade credit.