Question

Collaborative activity

Preparation and presentation in Excel formulated of two cases that are based on the themes proposed in chapters 6, 7 and 8 of the guide text: Gitman, Z. (2016). Principles of Financial Administration. Fourteenth Edition.

The thematic proposal is free, however, in each proposed exercise at least 3 fundamental concepts discussed in the chapters should be integrated, for example, an exercise could be created whose proposal integrates: Cost of capital and Risk and return. Remember, there are two (2) cases that you must propose and solve, do not use the same themes when making your proposal!

FIRST PART

Excel Formulated Sheet

At the end of 2017, TLM Aceros has a bond issue in circulation. The bond has 13 years left to expire, and has a coupon rate of 7%. The interest on the bond is capitalized annually. Its par value is 2,300 dollars and is currently sold at 1,714.83 dollars.

Perform:

Create an excel spreadsheet formulated for the examples of yield at maturity and annual interest cited, and do the following:

1. Determine the yield at maturity.

2. Determine the bond price if the yield at maturity is 3% higher.

3. Determine the price of the bond if the yield at maturity is 3% lower.

4. How can you summarize the relationship between the price of the bond, the par value, the yield at maturity and the coupon rate?

SECOND PART

Excel Formulated Sheet.

Federico is interested in buying common shares of Azucar LH. The company recently paid dividends of 5 dollars per share. its earnings (and therefore its dividends) are expected to increase at a rate of 8% in the foreseeable future. Currently, actions with similar level of risk have required returns of 11%.

Perform:

1. Taking into account the previous information, calculate the present value of the shares. Use the constant growth model to determine it.

2. Two years later, your broker offers you additional shares of Azucar LH at 65 dollars. The most recent dividend paid by the company was 3.67 dollars per share, and the expected profit growth rate is still 8%. Assuming that you determine that the appropriate risk premium is 7.03% and you know that the current risk-free rate (RRT) is 5.31%. What is the required, current performance of the company?

THIRD PART

Excel Formulated Sheet.

Margarita is investing in three different shares, or creating three investment portfolios from two shares. Margarita considers herself a conservative investor. According to your analysis, the three financial instruments you have reviewed would provide you, in the 2019-2025 period, the returns indicated in the following table.

In any of the portfolios of two shares, the presence of each of them will be 60%. The three possible combinations for the creation of portfolios are AB, AC and BC.

Acciones A Acciones BACciones C Año 11% 11% 13% 2019 15% 2020 14% 12% 16% 10% 11% 2021 15% 13% 13% 2022 2023 17% 11% 11% 14% 16% 11% 2024 17% 12% 2025 13%

Perform:

Create a spreadsheet.

1. Calculate the expected performance of each individual action.

2. Calculate the standard deviation of each individual action.

3. Calculate the expected patches of the AB, AC and BC portfolios.

4. Calculate the standard deviations of the AB, AC and BC portfolios.

5. Would you recommend that Margarita only in portfolio A or in a portfolio made up of shares A and B? Explain your answer from a risk-return point of view.

6. Would you recommend that Margarita invest only in B or in a portfolio made up of shares B and C? Explain your answer from a risk-return point of view.

Answer 1

As per rules I am answering the first 4 subparts of the question

1	YTM	5.90%
2	Bond price	$1,081.27
3	Bond price	$1,114.83

4: Price of the bond is inversely related to the yield of the bond. Par value and coupon rate remains constant irrespective of the yield.

Workings

Book1 - Excel Sign in - AutoSave Of File Home H Draw : Page Layout 7 Comment Insert Formulas Data Review View Help Tell me what you want to do Share X = = = - A A - A- Calibri 11 BIU - - Font General $ -% Ebelte - 28 0 Insert - Delete - Format Paste - Find & % s, Sort & Formatting Styles Filter - Select Table Styles Clipboard Alignment Number Cells Editing B8 А в YTM =RATE(13,7%*1000,-1714.83,2300) Bond price --PV(D2*103%,13,7%*1000,1000) Bond price --PV(D2*97%,13,7%* 1000,1000)