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[Xpert]

Question ## 01*
*Current investigation has gathered the following financial data from ABC
Company. You are required to calculate the following:*

*Bond: **Calculate the value of a Rs. 5,000 (par value) bond paying interest
at an annual coupon interest rate of 10% with 10 years maturity and the
required return on similar**‐**risk bonds is currently a 12% annual rate
paid annually.*

*Common stock: **Company has recently paid annual dividend of Rs.1.50 per
common share this year. The Company expects earnings and dividends to grow
at a rate of 7% per year for the anticipated future. What required rate of
return for this stock would result in a price per share of Rs. 32?*

*QQuueessttiioonn ## 0022*

*Using the basic equation of capital asset pricing model (CAPM), solve
followings for the unknown.*

*1. Find the risk free rate of return with a required rate of return of 18%
and a beta of 1.50 when the market return is 16%.*

2. *Find the beta for a stock with a required rate of return of 15% when the
risk free rate of return and market risk premium are 10% and 2.5%
respectively.*

*(Show complete calculations and provide all formulas as they carry marks) *