Valuation of Security

Valuation of Debenture

(1) Find out value of debenture if the face value of debenture is 1000 carrying interest
Rate is 10%, and cost of debt is 12% and maturity period is 4years.

(2) calculate the value of debenture from given data:-

Face value of debenture 100, annual interest rate 15%, expected interest rate 20%,

Maturity period is 5years.

(3) A debenture considers face value 1000, maturity period is 4 years interest rate is
8%.Find out value of debenture if interest is paid (a) annually (b) semi annually

(4) X is a debenture holder who is to receive an interest 10 annually for perpetuity on his
debenture. Find out value of debenture if the cost of debt is 12%.

(5) Infosys company has debenture of having current market price is 1000 face value is
1200. The debenture will be redeemed after 10 years. The debenture carries interest rate
10%. Find out Yield to Maturity of debenture.

(6) ABC company had sold 1000, 12% perpetual debentures 10 years ago. Interest rates
have risen since then, so that debentures of this company are now selling at 15% yield
basis.
(i) Determine the current market price of the debentures. Would you buy the
debenture for 700? What is the yield?
(ii) Assume that the debentures of the company are selling at 825. If the debentures
have 8 years to maturity, compute the approximate effective yield an investor
would earn on his investment.

Valuation of preference share

(7) Consider a preferred stock with a par value of 100 that pays a 12% annual dividend. If
the discount rate for this stock is 10% and maturity period is 5years what would be value
of preference share?

(8) The face value of preference share of Reliance ltd is 1000, dividend rate is
 10%, current market rate is 15% which matures in 10 years. Find out the value of
preference share.

(9) ITC Ltd. issued irredeemable preference share before some years of 1000 each which
carried dividend rate of 12%. The current expected dividend rate is 17%. Find out value
of preference share.

Valuation of Equity share

(10)The per share dividend of XYZ company remains constant indefinitely at 10.
Assuming a required rate of return of 16%, compute the value of the share.

(11) Dishant enterprise is paying 20 dividends and same dividend amount will be continuing
in future also. Find out the present value of equity share if the cost of equity is 7%.

(12) Sumi company is expected to pay dividend of 20 per share. Dividends are expected to
grow perpetually at 5%. Find out market value of the share if capitalization rate is 7.5%.

(13) A firm is paying dividend of 3 per share. The rate of dividend is expected to grow at 10%
for next three years and 5% thereafter infinitely. Find out the value of share at the end of third
year if the required rate of return of the investor is 15%.

(14) Calculate the price of equity share of ITC Ltd. according to earning capitalization approach
if it is earning 20 and its capitalization rate is 10%.

(15) The required rate of investors is 15%. ABC Ltd declared and paid annual dividend of 4
per share. It is expected to grow @20% for the next 2 years and 10% thereafter. Compute the
price at which the shares should sell?

(16) XYZ Ltd paid a dividend of 4 per share at the end of the year. It is expected to grow by
8% each year for the next 4 years. The market price of the shares is expected to be 60 at the
end of 4 years. Assuming 12% required rate of return of investors, at what price should the
shares of XYZ Ltd sell?

(17) The required rate of return of investors is 14%. Assume the D1 is 2.50. Compute the price
at which the shares will sell if the investors expect the earning/ dividend to grow at 12%.
(18) The Alert Ltd currently pays 3 per share as annual dividend. Assuming 10% required rate
of return on shares, compute the value of shares under each of the following dividend growth
rate assumptions:
i. Annual rate of growth 0% indefinitely
ii. Annual constant rate of growth 5% to infinity.
iii. Annual rate of growth 5% for each of the next 3 years, followed by a constant annual rate
of growth of 4% in 4years to infinity.

(19) A share is selling for 50 on which a dividend of 3 per share is expected at the end of the
year. The expected market price after the dividend declaration is to be 60. Compute (i) the
return on investment in shares (ii) dividend yield (iii) capital gain yield.