[Blue Heaven] MGT201 Assignment 2 FALL2012 solution

dont copy paste, use book and other sources as well.

a) You need to calculate the expected return, standard deviation of returns and 
coefficient of variations for MAQ Motors' investment opportunity. 
Solution of Part a
Expected ROR =<r>= ∑ Piri=12%,
Std Dev=σ = (∑(ri - < ri> ) 2 * Pi)0.5 = 11.66%
CV = σ / <r>= 0.97

b) You are expected to analyze the price of Wahid Consultant Company's stock 
in case Mr. Zain requires a rate of return of 16 percent to invest in this stock 
with this degree of riskiness.

Solution of Part b

PV = Po* = DIV1 / (rce – g) = 22.22

c) You need to identify which stock of Zahoor Company has higher intrinsic 
value; in case, Mr. Zain wishes to earn a return of 9% on each stock.

Solution of Part c
Stock Y: PV=Po* = DIV1 / (rce – g)= 2850
Stock Z: PV=Po* = DIV1 / (rce – g)= 2700

d)
You are supposed to determine the dividend yield pricing for common stock

of Ideal Contractors using both: 'Zero Growth Pricing' plus 'Constant Growth 
Pricing' Models
(where: g=10%). Also compare & interpret the result.

Solution of Part d
Zero Growth Pricing: Po* = DIV1/rCE= 40 
Constant Growth Pricing: Po* = DIV1/ (rCE – g)= 66.66

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Ali Khan * ©yberian  *

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