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Finance Calculation - Research Paper Example

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Summary
There is a conflict of goal between management and owners. The target of management level is to maximizing shareholder's wealth. Nevertheless, sometimes it seems that instead of maximizing shareholder's wealth, they try to keep their performance in a satisfactory level and seek to raise their benefits.
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Finance Calculation
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Extract of sample "Finance Calculation"

Download file to see previous pages This is the factor for the argument and criticism of the Millionaires Factory by the Australian Shareholder's Association.
If the market required rate of return is higher than the coupon rate of a bond, the price of the bond goes down. Because there are available bonds in the market, which give more interest than it does. Therefore, investors do not feel interest to invest on the bond, which offers lower interest rate than market's other bond.
If the market required rate of return is lower than the coupon rate of a bond, the price of the bond goes up. Because there are available bonds in the market, which give lower interest than it does. So, investors feel interest to invest on the bond, which offers higher interest rate than market's other bond.
...
Price of bond at 4% market interest
= [80{1-1/ (1+ .04) ^5} .04] + 1000 / (1+.04) ^ 5

= $1177.62

Price of bond at 6% market interest
= [80{1-1/ (1+ .06) ^5} .06] + 1000 / (1+.06) ^ 5

= $1084.20

Price of bond at 8% market interest
= [80{1-1/ (1+ .08) ^5} .08] + 1000 / (1+.08) ^ 5

= $999.99

Price of bond at 10% market interest
= [80{1-1/ (1+ .10) ^5} .10] + 1000 / (1+.10) ^ 5

= $684.66

Price of bond at 12% market interest
= [80{1-1/ (1+ .12) ^5} .12] + 1000 / (1+.12) ^ 5

= $598.42



Price of bond at 14% market interest
= [80{1-1/ (1+ .14) ^5} .14] + 1000 / (1+.14) ^ 5

= $553.20


Price of bond at 16% market interest
= [80{1-1/ (1+ .16) ^5} .16] + 1000 / (1+.16) ^ 5

= $479.47


















In while,

1 = 16%
2 = 14%
3 = 12%
4 = 10 %
5 = 08%
6 = 06%
7 = 04%
8 = 02%.










Relationship between bond value and market required rates of return

If the market required rate of return is higher than the coupon rate of a bond, the price of the bond goes down. Because there are available bonds in the market, which give more interest than it does. Therefore, investors do not feel interest to invest on the bond, which offers lower interest rate than market's other bond.


If the market required rate of return is lower than the coupon rate of a bond, the price of the bond goes up. Because there are available bonds in the market, which give lower interest than it does. So, investors feel interest to invest on the bond, which offers higher interest rate than market's other bond.



Answer to the question no.6

Part 1

We know,
P = (D + p) / 1 + k
In while,
P = Opening share value
D = Dividend
p = Closing share value
k = .12

g ( growth) = (3.5- 3.24) / 3.24 = 8.02%
So, D = 3.5 + 3.5 8.02% = 3.78
So now, ...Download file to see next pagesRead More
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