Raneem owns shares in HP Inc (FIN101)


College of Administrative and Financial Sciences

Assignment 2
Principles of Finance (FIN101)
Deadline: End of Week 10 (27/03/2021 @ 23:59)

Course Name: Principles of Finance Student’s Name:
Course Code: FIN101 Student’s ID Number:
Semester: 1st CRN:
Academic Year: 1441/1442 H, 1st Term

For Instructor’s Use only
Instructor’s Name:
Students’ Grade: /5 Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

• This assignment is an individual assignment.
• The Assignment must be submitted only in WORD format via allocated folder on Blackboard.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented. This also includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submitted assignments will NOT be entertained.
• Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.

Assignment Question(s): (Marks 5)

Q1. ABC company is issuing eight-year bonds with a coupon rate of 6.5 percent and semiannual coupon payments. If the current market rate for similar bonds is 8 percent, what will be the bond price? If the company wants to raise $1.25 million, how many bonds does the firm have to sell? (1 mark)
Ans:
Q2. You are interested in purchasing the common stock of Inch, Inc., which is currently priced at $ 40. The company is expected to pay a dividend of $3 next year and to grow at a constant rate of 8 percent.
a. What should the market value of the stock be if the required rate of return is 15.75 percent? (1mark)
b. Is this a good buy? Why or why not? (1mark)
Ans
Q3. Raneem owns shares in HP Inc. Currently, the market price of the stock is $36.34. Management expects dividends to grow at a constant rate of 6 percent for the foreseeable future. Its last dividend was $3.25. Raneem’s required rate of return for such stocks is 16 percent. She wants to find out whether she should sell his shares or add to her holdings.
a. What is the value of this stock? (1 Mark)
b. Based on your answer above, should Raneem buy additional shares in Honda Inc.? Why or why not? (1 Mark)

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