FIN622 GDB No 1 Solution Autumn 2021-VU GDB Solutions-VU
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00:00Assalamualaikum Dear Students and Viewers, Welcome to my YouTube Channel DigiPenner.
00:07The GDV Display in front of you is related to Corporate NANS Subject 4.26.2.2
00:15This was submitted by one of my students, so I have redid it and explained it.
00:22So, let's redid it and solve it.
00:28Present Value is a fundamental concept of financial management that helps to analyze different options and pinpoint the best one for value maximization or wealth creation.
00:40The Present Value provides the foundation to companies and individuals towards better decision making for future savings.
00:48Present Value is a fundamental concept of financial management that helps to analyze different options and pinpoint the best one for value maximization or wealth creation.
01:01The Present Value provides the foundation to companies and individuals towards better decision making for future savings.
01:09The Present Value provides the foundation to companies and individuals towards better decision making for future savings.
01:24Finance literature pays special attention to discounting or the present value method and their application in diverse settings.
01:32Finance literature pays special attention to discounting or the present value method and their application in diverse settings.
01:52The efficient use of capital or resources improves liquidity and enhances opportunities for depositing or investing.
02:19Different Present Value methods are available and assist in the decision making process like Constant Cash Flow and Varying Cash Flow.
02:28Different Present Value methods are available and assist in the decision making process like Constant Cash Flow and Varying Cash Flow.
02:45Usually, the bond provides constant cash flows for a certain period.
03:09We can judge the value of cash flows by discounting them and comparing them with alternatives.
03:30In this context, an annuity is considered a better discounting mechanism.
03:37In this context, an annuity is considered a better discounting mechanism.
03:51An annuity is an equal periodical series of cash flows.
04:18An annuity is an equal periodical series of cash flows.
04:47An annuity is an equal periodical series of cash flows.
04:55A company has three options of bonds with different terms and conditions.
05:07The company wants to invest a considerable amount in the best option to maximize its shareholder wealth.
05:26The management has given you a responsibility to select only one option among the three.
05:39The following table shows information regarding the time and interest rate of a single bond.
05:54Bond A, Bond B, Bond C.
05:56Bond A, Bond B, Bond C.
05:58Bond A, Bond B, Bond C.
06:00Bond A, Bond B, Bond C.
06:02Bond A, Bond B, Bond C.
06:04Bond A, Bond B, Bond C.
06:06Bond A, Bond B, Bond C.
06:08Bond A, Bond B, Bond C.
06:10Bond A, Bond B, Bond C.
06:12Bond A, Bond B, Bond C.
06:14Bond A, Bond B, Bond C.
06:16Bond A, Bond B, Bond C.
06:18Bond A, Bond B, Bond C.
06:20Bond A, Bond B, Bond C.
06:22Bond A, Bond B, Bond C.
06:24Bond A, Bond B, Bond C.
06:26Bond A, Bond B, Bond C.
06:28Bond A, Bond B, Bond C.
06:30Bond A, Bond B, Bond C.
06:32Bond A, Bond B, Bond C.
06:34Bond A, Bond B, Bond C.
06:36Bond A, Bond B, Bond C.
06:38Bond A, Bond B, Bond C.
06:40Bond A, Bond B, Bond C.
06:42Bond A, Bond B, Bond C.
06:44Bond A, Bond B, Bond C.
06:46Bond A, Bond B, Bond C.
06:48Bond A, Bond B, Bond C.
06:50Bond A, Bond B, Bond C.
06:52Bond A, Bond B, Bond C.
06:54Bond A, Bond B, Bond C.
06:56Bond A, Bond B, Bond C.
06:58Bond A, Bond B, Bond C.
07:00Bond A, Bond B, Bond C.
07:02Bond A, Bond B, Bond C.
07:04Bond A, Bond B, Bond C.
07:06Bond A, Bond B, Bond C.
07:08Bond A, Bond B, Bond C.
07:10Bond A, Bond B, Bond C.
07:12Bond A, Bond B, Bond C.
07:14Bond A, Bond B, Bond C.
07:16Bond A, Bond B, Bond C.
07:18Bond A, Bond B, Bond C.
07:20Bond A, Bond B, Bond C.
07:22Bond A, Bond B, Bond C.
07:24Bond A, Bond B, Bond C.
07:26Bond A, Bond B, Bond C.
07:28Bond A, Bond B, Bond C.
07:30Bond A, Bond B, Bond C.
07:32Bond A, Bond B, Bond C.
07:34Bond A, Bond B, Bond C.
07:36Bond A, Bond B, Bond C.
07:38Bond A, Bond B, Bond C.
07:40Bond A, Bond B, Bond C.
07:42Bond A, Bond B, Bond C.
07:44Bond A, Bond B, Bond C.
07:46Bond A, Bond B, Bond C.
07:48Bond A, Bond B, Bond C.
07:50Bond A, Bond B, Bond C.
07:52Bond A, Bond B, Bond C.
07:54Bond A, Bond B, Bond C.
07:56Bond A, Bond B, Bond C.
07:58Bond A, Bond B, Bond C.
08:00Bond A, Bond B, Bond C.
08:02Bond A, Bond B, Bond C.
08:04Bond A, Bond B, Bond C.
08:06Bond A, Bond B, Bond C.
08:08Bond A, Bond B, Bond C.
08:10Bond A, Bond B, Bond C.
08:12Bond A, Bond B, Bond C.
08:14Bond A, Bond B, Bond C.
08:16Bond A, Bond B, Bond C.
08:18Bond A, Bond B, Bond C.
08:20Bond A, Bond B, Bond C.
08:22Bond A, Bond B, Bond C.
08:24Bond A, Bond B, Bond C.
08:26Bond A, Bond B, Bond C.
08:28Bond A, Bond B, Bond C.
08:30Bond A, Bond B, Bond C.
08:32Bond A, Bond B, Bond C.
08:34Bond A, Bond B, Bond C.
08:36Bond A, Bond B, Bond C.
08:38Bond A, Bond B, Bond C.
08:40Bond A, Bond B, Bond C.
08:42Bond A, Bond B, Bond C.
08:44Bond A, Bond B, Bond C.
08:46Bond A, Bond B, Bond C.
08:48Bond A, Bond B, Bond C.
08:50Bond A, Bond B, Bond C.
08:52Bond A, Bond B, Bond C.
08:54Bond A, Bond B, Bond C.
08:56Bond A, Bond B, Bond C.
08:58Bond A, Bond B, Bond C.
09:00Bond A, Bond B, Bond C.
09:02Bond A, Bond B, Bond C.
09:04Bond A, Bond B, Bond C.
09:06Bond A, Bond B, Bond C.
09:08Bond A, Bond B, Bond C.
09:10Bond A, Bond B, Bond C.
09:12Bond A, Bond B, Bond C.
09:14Bond A, Bond B, Bond C.
09:16Bond A, Bond B, Bond C.
09:18Bond A, Bond B, Bond C.
09:20Bond A, Bond B, Bond C.
09:22Bond A, Bond B, Bond C.
09:24Bond A, Bond B, Bond C.
09:26Bond A, Bond B, Bond C.
09:28Bond A, Bond B, Bond C.
09:30Bond A, Bond B, Bond C.
09:32Bond A, Bond B, Bond C.
09:34Bond A, Bond B, Bond C.
09:36Bond A, Bond B, Bond C.
09:38Bond A, Bond B, Bond C.
09:40Bond A, Bond B, Bond C.
09:42Bond A, Bond B, Bond C.
09:44Bond A, Bond B, Bond C.
09:46Bond A, Bond B, Bond C.
09:48Bond A, Bond B, Bond C.
09:50Bond A, Bond B, Bond C.
09:52Bond A, Bond B, Bond C.
09:54Bond A, Bond B, Bond C.
09:56Bond A, Bond B, Bond C.
09:58Bond A, Bond B, Bond C.
10:00Similarly, what we did?
10:02We took out the constant cash flow stream for 1 year.
10:06So, 10% of it multiplied by its face value.
10:10So, we will get the value of 29,000.
10:12It means, you will get 29,000 at the end of every year.
10:17Here, I am using ordinary annuity.
10:19It is also remembered that I am using its concept.
10:21Not of annuity due.
10:24So, here we have to determine the present value of B.
10:28The formula is exactly the same.
10:30But, now the values will change.
10:32The face value of cash flow is 29,000.
10:360.1 to 1 minus 1 is equal to 1 plus 0.12.
10:40Raised to the power of 6.
10:42Because, this time we have the value of n as 6.
10:451 plus 0.12 plus 290,000.
10:491 plus 0.12 raised to the power of 6.
10:512 components are there.
10:53133,538.5 plus 146,923.0.
10:59So, we have 280,461.5.
11:03So, we have these values.
11:08In the current year of bond B.
11:13Let's see this also.
11:16This is less than 290,000.
11:19Bond C.
11:20The face value has changed.
11:22It is 310,000.
11:24The market rate is 11%.
11:27The number of years is same.
11:29So, its cash flow stream is 31,000.
11:32For 1 year and for the going up to the 5 years.
11:35So, we will put the value in the formula.
11:3731,000 divided by 0.11.
11:391 minus 1 is equal to 1 plus 0.11.
11:42Raised to the power of 5.
11:441 plus 0.11 plus 31,000.
11:47310,000 divided by 1 plus 0.115.
11:51So, we have these values.
11:55311,145.7.
11:59It is also.
12:11So, this value is 311,145.7.
12:16According to me, these values should be less than this.
12:19Because 11% is greater than 10%.
12:22This is the rule of the market.
12:25Whenever the market value is greater than the coupon rate.
12:30Then the price of the bond is on the discount.
12:34Here, it is coming more.
12:36I don't understand anything.
12:38But I request my viewers.
12:41If anyone doesn't understand anything.
12:43Then kindly share this thing in the comments.
12:47So that everyone can benefit.
12:49Why is it coming more?
12:52As per the rules.
12:56It should definitely be less.
12:58As seen above.
13:18It should be less.
13:20I have tried it many times.
13:22This value is coming again and again.
13:24Kindly check it.
13:26If anyone wants to share his opinion.
13:28Then share it in the comments section.
13:30So that everyone can benefit.
13:32Now, part 2.
13:34Which option is best?
13:36I think investing in bond is best option among 3.
13:38Now, the reason to give it in part 3.
13:40Why?
13:42Lowest current price.
13:44We have 280,000.
13:46In comparison of rest of the 2.
13:48Time period is 6 years.
13:50In case of bond B.
13:52That is greater than the rest of the 2.
13:54In case of bond A, you have 5 years.
13:56In case of bond B, you have 6 years.
13:58It means.
14:00For one more extra year.
14:02You will get 29,000 as a cash flow.
14:04In your receipt.
14:06One period will increase.
14:08I hope.
14:10You understood this solution.
14:12But.
14:14The values of PBC.
14:16The reason.
14:18Why it is increasing.
14:20I request you.
14:22Kindly give your suggestions.
14:24In the comments section.
14:26So that everyone can benefit.
14:28Thanks for watching.
14:30Assalamualaikum.