Taxmann’s CRACKER for Strategic Financial Management | CA-Final | New Syllabus

Contents E G A P

u

CHAPTER-WISE MARKS DISTRIBUTION

I-7

u

PREVIOUS EXAMS TREND ANALYSIS (MAY 2018 ONWARDS) NEW SYLLABUS

I-9

u

CHAPTER-WISE COMPARISON WITH STUDY MATERIAL

Chapter 1 u

4.1

SECURITY VALUATION

Chapter 5 u

3.1

SECURITY ANALYSIS

Chapter 4 u

5.1

PORTFOLIO MANAGEMENT

Chapter 6

6.1

u SECURITIZATION

Chapter 7 u

7.1

MUTUAL FUNDS

Chapter 8 u

DERIVATIVES ANALYSIS AND VALUATION

Chapter 9 u

1.1

2.1

RISK MANAGEMENT

Chapter 3 u

FINANCIAL POLICY AND CORPORATE STRATEGY

Chapter 2 u

I-13

FOREIGN EXCHANGE EXPOSURE & RISK MANAGEMENT

I-5

8.1

9.1

S T N E T N O C

I-6

E G A P

Chapter 10 u

INTERNATIONAL FINANCIAL MANAGEMENT

Chapter 11 u

Chapter 12 u

CORPORATE VALUATION

Chapter 13 u

INTEREST RATE RISK MANAGEMENT

MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING

Chapter 14 u

STARTUP FINANCE

10.1

11.1

12.1

13.1

14.1

SOLVED PAPER CA FINAL NOV. 2020 (NEW SYLLABUS) (SUGGESTED ANSWERS)

P.1

SOLVED PAPER CA FINAL JAN. 2021 (NEW SYLLABUS) (SUGGESTED ANSWERS)

P.28

SOLVED PAPER CA FINAL JULY 2021 (NEW SYLLABUS) (SUGGESTED ANSWERS)

P.46

4

SECURITY VALUATION CHAPTER

PART 1

THEORY

srhy se su se, c. oti t edhel tt gn t r Sns upacnu e o d e t i t eb t s r n a r t y t a o ehmetes c t i vh p i mr a lp i tht r itura i s o o t Pfwne c a pn n do,evmr e h a e nf u n oae i n c ai W e l lh d y fii tla.a e v i e n b T e v t eheui ho .dt r mtcdne e i ngas dunp e n f a e o s o rr i r hms e s l vuimt iga o eootsny d h i d c t n d G t t n l e r e s n a oo ,e h moe s t krtsutBp t neeeqs.eu atcreemdb n i u v t Bir t n nr,, e k ypa i d u t ya s o dmoeg i bp r i e h n r m t t dtn fe i atoo eo l n p n u uno e y ey o m so l hu ei t l s cw da r i s r g edi seue u d h u s s p r t d t r d u a a . t m r c n r e m snaouc r e r dodwl a u r a h nbe t e eansgg e oeu i bsed r bss h nr e e n l s l oe vb yl nei i h o i l oT l ewe h sba dg r p. ni dcani a e us t oe nrhonah y p i t r e cn a eora ut e oahboh o e rptatto uv s , e ts cpi e e s t o a i s Zmdnve ry h a o ec ui nr e eo ct ezrha t r e s rn t mh na fo oI n oco at t t i

y del ere dov nmt i u a y ol t i pb t n xa er a eu sd q a i s d wn e to s i s sce s a r e p ”c x l e ae dls opi t s me i h kT dr da . s omg D n ki dc n nor ta as e me d ahe htnl : , i al a e e r t d Gde o eor hmnm T on “eno h a i eth t a hot t u tsl sgd a a nnv i eg nd dn wr i i v ooi w c nc do kA l nl o.oo sm tf l e a ihh shgt i i e yw n tb I i

Traditional approach:

) 3 / E + D ( m = P

e r a h s e h t f o e c i r p t e k r a M = P , e r e h W

e r a h s r e p d n e d i v i D = D

e r a h s r e p s g n i n r a E = E

. r e i l p i t l u m a = m

4.1

[May 2012] [4 Marks] Q.1 Write a short note on Zero coupon bonds

-

Ans.:

Q.2 Write a short note on Traditional & Walter Approach to Dividend Policy [May 2014] [4 Marks]

Ans.:

N O I T A U L A V Y T I R U C E S

4.2

: s n o i t p m u s s a g n i w o l l o f e h t n o d e s a b s i l e d o m s i h T

ed hnm t ae s y e m man iha t ram uro r oGf f y d obe t dv . l e i aer s de u r qid e v v eo t a sr o k ipn s s d sd i t r nh n n ei ga r i det u v n t iwe y d em e oh g h t T t d , d.u y s e j t g h e n n ci i v a a i n t t t rc t r a a e e j c teb n h u l u gds e i a nr n f ei o i w ae o s t i t h e e n a hrt o t r i on t , e i t o l r d e d a d n de . s e s o oh i s r s o c mcal y r t aba st s e i t e e d h n v n tara n U l rtaa I h d e gd c ) ) d i i neoi r ( ( U wDp a

b

-

t yn ba rt a s ei nd tn n ua oh ct s n i i d a t yr ee hc t ne ar ho t em t e a r r ra e s hd gn i e h d ai v ti a sd dy nb er da i e v n i d e ts n u aa t s c i e d tb n s ui oi s ch s i T. d s .d sd r onn t ee s di d e i vi v v i nd d I ene cb ah ot ft do enon hneo c t d a i e sco s t ha r omcb pres p fih i ueTt sh.I t d. rf em e o t kr l n a y fi i Wcl i r y l e o n t Ep a n nti f hneo oere Jmau hl tt ys be oa 3vbv 6n e 9idh 1ent s nhat T y i c ce .i dt f lf en daoa nvpy edc ul nl oe prei o do: e p i rr s v pa n i d o lsdni e t sep ddt d oni i m Memvu d i i ods sv r s ’ i ea f r d t e a tdi t g l a e n a htri p a Wtr w o o eearl p n l p hr i po ea Tt s f Walter approach:

-

.s y n t i i a u qm . e s e t r f n e ok ti s m s r t o s s cs e v ee hn n t i i s s i su t i b e o, c st n dn a ne n am i ts t f o ne a t v t s s n n i g l n oa i cn n r so i a i ti t e n d d ed . e ma m n t y s r i e a i r t f e vv e y r ne t i i y u nh l q n oi t e o n w l e r l t s a u a u t n l h e t a i r l s. f s w nd i o e m m ear e t r i r a mt e i r f f l sa e e ei h h hh n T T TTu ) ) ) ( ( (

a

b

c

. e efe s hobmg u r l t t l fi n a s l i no i v n er e t ha ecwt n s h w e e t c , ee ti s i k e . e h dh b m r t nwne r p a pa i i e h t f y h ) t u . c r e h s t y i r b ( l h n l i e f l o t r n o t a t p i a r f o s n t o e u i m a r d r d t l e e u ng e e t t f s r e r s i n s l i e afdiu i e o r h d m v s . h t i f i e s ed t I t s n . r d t e i i . i a , r ) n e e a e e m r e e ke f t k r v i ha lu( d e a l o n t i r h a v tnmdh r g e s i i n n a r g t d o o at hep n a : t t s e d l a ) fs o n s r o e y h e m r . s i ( e u r t l c ea t s sn s e u ce n itani t u m e i b v ’ i i r f e i r er n a e r r t r v t r f wi o o ps g p oa t n s d t td l l i t w a h e e a a d en t t bn u s ko s h d e d i r r t a fl n p t e mlns e n a u o a h o n e h p t g o i t r d ms c c os t n i w i e e a ea f f e i v d l v n hc o o e i e e p d nmr t r o m m s r a a air e a d tw e a s s a a fi b ’ he n s a ht e e s g a tg t r t r h imett n h s r h y n s di s l i m g e fiT b n e n i r r n uw e e d .da t t i i o i i a gl oa) et e n n n e f n rl k e n m i i o( f r i l e r ao f a h l d A T E rf n n rnlml I I a e e e r ri t t t u h

e l . . up ) ) ) l t o t a a t f ( ( ( Wo Weaeh

rcds d

e

f

i

ii

t neoc r i t e e g eh l l gt n o i n, c d rr ae o hv o t ce cr o e ct gwas ao e n H t ov n i .t n es ai ct er n r aua e prdy tfb es eon hr t e etk p st ea a nc t dine enom nici fie t egee dnmg a i a ehtr e bch e ttv nn a ai e co h p nsnt i t os ou i i t a t b a ba r g u0rn d0ui d 1 h fa ft o o o rtn to ps p efei cdcn no nn i o oo t ca cb r e ru haed h f To t h o en c i ca i h r sw pi

Q.3 Why should the duration of a coupon carrying bond always be less than the time to its maturity?

[May 2009] [3 Marks]

Ans.:

i.e.

.o trt en enr ue f l ee f a vmomZ t l ts ua l i n e f r wt ev o s s n t n n e i n i r o r e i pe et mha eh t r t h/ s fu t s e o d ei v vhn y e i t fii e h coer T u eth . t r r t n oa,ao . p m t y d i t t eai o i rear N m r h O ue isut t e t I p d a T v n e i A y e m a g e U t h h ac i L t et r r e r A e u ret V vroe ba arfs Y T doesdm t b l e I s ee R s slut t o e l U h va i bwo C gnv i i E d t r r e S l e wnels u t a a n os u efi eq w hi l c t ,e , fi he se s ic i ty r c to eiaa I f . phrw e t swnl r n eennoa s mhoopi u i t tTea od s .mrc e n vdiueo n t no dhb i tn e e rbh ro he e t e hh hp rtg /t e m u sfviio i hoohHc

.ea .s lds ss t e hini e e i t can r r fa a o nn a ehheasp s s s hnrm e a e g w fid o hsn l f o c cei o d h d h r ede e utnt h pfaport eotoha, r ssdthr t e s e a eru e v . hd se osmt s t e lfiai w so r t o o i s nh oa ,itH rs ae h k e eh s beck.f c c mt d a r balo somu b o u t k e oy hc r o yns ug a a yb e e e b hn ehre so oh t h y fm shttu o n y s a T b e n knic .a r nfs cr r a e au o o o i cphf be t t s c wrmsn y u r o u uooceo o h d fl s t bt i e t e t e i edru hmd hn ort a h n e Tar sh sse o a e yo c vcltl nf b m a lta a pdonn og v e e r e ef mgni l onic e c a s fih e m c s s f aheuiao h c h s yxcswc o s ber l a fi grl ss iph uu n p e s r yi f hi r o a h n st e t o ha ae t sc ep se n r i necmg e v n f whi a onf oTS ceoh : a l u m r o f g n i w o l l o f e h t y b n e v i g s i o i t a R E / P

Market Price of the Share Earnings per Share P/E =

4.3

Q.4 Write a note on buy-back of shares by companies and what is the impact on P/E Ratio upon buy-back of shares?

[Nov. 2019 (Old Syllabus)] [4 Marks] Ans. Buy-Back of Shares:

Impact of Buy-Back on P/E Ratio:

se i r h a t h nS I .e r s e P r a s hg sn i fn o r ra e bE e mh ut nn i ee hs t i sr e ca s ui de er r e yh nt , at pn mt a os cn eo hc t n yi ba sm e e r r a s hg sn fn i o kr ca ae e bh . yt S uf P bi eE es ha Tc

e r e h t , s u h T . s e s a e r c n i y l l a r e n e g e. r S a hP sM e h t fe o r a eh cs i r f po te e c ki rr a p mt e ek hr t a ,M k cn ai be ys a ue br rc e n t i f s Ai i.e.

t. s c r ao pt mc ia ef ho t w , t e s e a h et r n c i ne i s oa t e dr nc ei n t ae l v u i t ma l re or f ef ho t m nu i t rn oa t a u nq i e mh ot nn eo dp du nd an re op t a e r d e l l mi uw nE e/ hP t sn Ao i.e.

PART 2

NUMERICAL PROBLEMS:

BOND VALUATION

Q.1 An investor is considering the purchase of the following Bond:

` 100 11% 3 years

Face Value Coupon rate Maturity

N O I T A U L A V Y T I R U C E S

4.4

(i) If he wants a yield of 13%, what is the maximum price he should be ready to pay for?

(ii) If the Bond is selling for ` 97.60, what would be his yield?

[Nov. 2009] [4 Marks] Ans.:

sr a o t ls l e e v wn si a e h tt s e e r c e i t r n p i hm t u o bm i gx na i s m i r e ph mt os ci ( % s3 w1 ot l a f n d i e t en r uu t o. u cy fs ia fd p o )o ee t uu l y l a a d vv a tne n r oe ei s t b e p r d pml eu ed o he w Tr

(i) Calculation of Maximum price

0 0 1 . s s r R a e = Y 3 =

`

1 1 . s R = × 0 0 1 . s R =

.

7 2 .

5 9 . s R s i y a p o t y d a e r s i r o t s F e I v V n P 3 i 9 e 0 6 h 0 . 7 t 1 0 .

2 t × 5 a h + 0 9 t 0 e 1 = c i 0 r 3 p A + .

1 9 m F 6 6 u I 3 + m V .

P 2 i 7 x × × 9 a .

1 1 5 1 1 2 m e h = = = T `

s ss yi l e e dl s ne r e ob vb ne l l i i hw et r n fr a i n,u s rn t e ua r t ee e r mh / t dI t, l 0 e .6 i d y . l 7 e di 9 ny. a%s d3R n1t ota bae u 8l f2 o a . e5v c9i r i .a r psf R s esi hi h t et tu n a la ha h t vt di rr ea e t fh o g nei hh eT . t% b. a 3 yd 1 g e at nn i ma l a l l e e h tr s I t

: d l e i y e t a m i x o r p p a t u o d n i f s u t e L

=

Redemption Value − Net Proceeds Maturity Period Redemption Value + Net Proceeds 2

= ) . p p a ( M T Y

Interest +

Rs. 11 +

s a l l e w s a t s e r e t n i h t o b g n i s i r p m o c ( s w o l f n i e r u t u f f o e u l a v t n e s e r p e h T

F I V P × 0 0 1 +

+ 2 4 .

6 2

= =

+ 2 0 4 .

2 × 1 1

2 A 1 2 F .

7 6 I .

V 0 7 P × 9 × 0 1 0 = 1 1 0 2 .

1 7

= % 2 1 t a e u l a V

% 4 9 .

1 1 r o 4 9 1 1 .

0 =

(Rs .100 − Rs .97.60) 3 (Rs .100 + Rs .97.60) 2

(12%,3)

(12%,3)

`

(13%,3)

(13%,3)

`

`

s a d e t a l u c l a c e b n a c s w o l f n i e r u t u f f o e u l a v t n e s e r P , y l g n i d r o c c A

Maturity Period (n)

`

`

`

`

`

`

`

11 100

Annual Interest (I)

Redemption Value (RV)

(ii) Calculation of yield

N O I T A U L A V Y T I R U C E S

(i) 8%

(ii) 9%

(iii) 10%

(iv) 11%

[Nov. 2019 Old Syllabus [5 Marks]] n e v i G

. s r s y i d 5 l 0 0 e i % 0 1 y 0 1 1 d . .

1 s s e R R r i u q e r f i e d u n l a o V b e n e t

h o e a i t u t r f l p n a o o v m e p e e u

d e u c l f e i a o a V C F R L ) I (

Value of Bond

Calculation

ee 4 9 1 9 c b 8 .

3 .

2 .

1 il .

4 0 6 2 ri l 1 1 0 0 pw 1 1 1 1 t . . s . . s s d s s e R R R R h n o gb = = = = i 1 0 1 3 he 3 2 eh 9 .

5 . . .

4 1 8 5 t 7 7 6 6 hf t + + + + ,o e 3 9 0 6 r e 9 .

8 .

9 .

9 ou . l 9 8 7 6 fa 3 3 3 3 ev r e e hh ] ] % %T t ] %] % 1 0 1 1. e s s 8 9 ds r r s s r r Y Y Y Y 5 5e a F 5F 5F F t c a I I I I n l V V V V ee v P P P P ri [ [ [ [ yg 0 0 0 0 e l 1 1 1 1 s e 1 1 1 1 r h + + + + et n ] %] %] %] %v I n 0 1 8 9 1 1i . r r r r d.

Y Y Y Y ee l % F 5I F 5I F 5I F 5r i8 I V V V V ays ti P P P P ds [ [ [ [ l d e el 0 0 0 0 i e wi 1 1 1 1 y oy dl n nee hh % % at % % 0 1 e 8 9 1 w t 1 c iat r s ee pb h lg ) v ) el ) i i ) i i hii i i i ( ( ( ( Twh ) I I (

Required Yield

5 0.681 0.650 0.621 0.593 4 0.735 0.708 0.683 0.659 3 0.794 0.772 0.751 0.731 2 0.857 0.842 0.826 0.812 1 0.926 0.917 0.909 0.901 Year PV Factor @ 8% PV Factor @ 9% PV Factor @ 10% PV Factor @ 11%

e h t f o M T Y e h t , e r o f e r e h T .

0 6 .

7 9 f o e c i r p e h t o t l a u q e . t% s o2 m1 le a b sd i l eu uo l a w vd sn i h o

Ans:

`

Tb

4.5

Q.2 The Nominal value of 10% Bonds issued at par by M/s SK Ltd. is Rs. 100. The bonds are redeemable at Rs. 110 at the end of year 5.

(I) Determine the value of the bond if required yield is :

(II) When will the value of the bond be highest ?

Given below are Present Value Factors :

Q.3 Calculate Market Price of:

(i) 10% Government of India security currently quoted at ` 110, but interest rate is expected to go up by 1%.

N O I T A U L A V Y T I R U C E S

4.6

(ii) A bond with 7.5% coupon interest, Face Value ` 10,000 & term to maturity of 2 years, presently yielding 6%. Interest payable half yearly.

[Nov. 2010] [5 Marks] Ans.:

: % 1 y b p u o g d l e i y t n e r r u c n e h W

% 9 0 .

0 1 = 1 + % 9 0 .

9 = % 1 + d l e i Y t n e r r u C = d l e i Y d e t c e p x E : % 9 0 .

0 1 f o d l e i y a t a e c i r p t e k r a m w e n f o n o i t a l u c l a C 0 0 1 × ) e c i r P t e k r a M / t s e r e t n I n o p u o C ( = d l e i Y 0 0 1 × e c i r P t e k r a M / 0 1 = 9 0 .

0 1 r O

, s w o l f n i e r u t u f f o ee . uu l l a va tv n n eo s i t e p r pm ee hd t e er bs la l a l l he sw ds na ot bs e er he t t fn o i es cs e i r i pr tp e m ko rc a mh c ei hh Tw

5 7 3 . s R = ×

F I V P × 0 0 0 , 0 1 +

= 5 8 8 , 8

`

9 7 2 , 0 1

+ 4 9 3 , 1

`

0 0 0 , 0 1 . s R =

A F I V P × 5 7 3

=

`

l l i w d n o b e h t e r o f e r e h t , ) % 6 ( .

M0 T0 0 Y, 0 n1 a. hs t rR e e hv go i b h sa i ) % 5m .

7 u ( i nm oe pr up ot ca eg hn t i l ,l e e cs ne i S b

i.e.

d a e r p s % 3 + e t a r l l i b T y a d 4 6 3

Discount rate

d a e r p s % 2 + A A A

d a e r p s % 3 + A A A

A A A A A A

Credit rating

× 0 0 0 , 0 1 . s R =

s r a e Y f l a h 4 r o s r a e Y 2 =

Redemption Value (RV)

(3%,4)

) 5 8 8 8 . × 0 0 0 , 0 1 ( + ) 1 7 1 7 .

3 × 5 7 3 ( =

`

`

6 12 7.5 100

Half-yearly Interest (I)

`

(3%,4)

`

= e c i r P t e k r a M

YTM (r)

y l r a e y f l a h % 3 r o . a . p % 6 =

Maturity Period (n)

1 1 .

9 9 = e c i r P t e k r a M w e N

`

% 9 0 .

9 = 0 0 1 × ) 0 1 1 / 0 1 ( = 0 0 1 × ) e c i r P t e k r a M / t s e r e t n I n o p u o C ( = (i) Current yield:

(ii) Market Price of Bond:

Market Price = P.V. of Interest + P.V. of Principal

Tutorial Note:

Q.4 Based on the credit rating of the bonds, A has decided to apply the following discount rates for valuing bonds:

N O I T A U L A V Y T I R U C E S

4.7

He is considering to invest in a AA rated ` 1,000 face value bond currently selling at ` 1,025.86. The bond has five years to maturity and the coupon rate on the bond is 15 per cent per annum payable annually. The next interest payment is due one year from today and the bond is redeemable at par.

(Assume the 364-day T-bill rate to be 9 per cent).

You are required to calculate: (i) The intrinsic value of the bond for A. Should he invest in the bond? (ii) The Current Yield (CY) and (iii) The Yield to Maturity (YTM) of the bond.

[Nov. 2011] [8 Marks]

Ans.:

u l a v r o f e t a r t n u o c s i d e t a i r p o r p p a e h t , n o: i s t i s e A ur qo ef hd t n no i nb ed vt e i g a er l A b aA t e rh e t pg sn Ai

(i) Calculation of Intrinsic Value of the bond:

-

% 4 1 = % 2 + % 3 + % 9 = M T Y : e r a s r e t e m a r a p r e h t o e h T 0 5 1 . s R = 0 0 0 , 1 . s R f o % 5 1 =

eA u. l r a vM , co i s S n. i d re t n c i i r ep hr t e nd an hu t s i sd s e n l o sb i )e 6 h F 8t .

I , 5 V e 2 4 r P 9 0 o , f × 1 6 1 3 e 5 . .r 0 . 4 s e 0 0 3 Rh 0 0 ( , × 1 T , 1 e.

0 ud 0 l 0 n a + , = o 1 v . bd 0 t 4 e en + . k ho 9 A 1 1 rtb a f 3 5 m F 3 e o I h )t V 4 P . + t6y 3 n 3 6 e. u 4 × × 9 r b 3 . r 0 0 4 0 d , 5 5 1 u1 l 1 1 5 c. u e o s hR h = = = T( s

s a d e t a l u c l a c e b n a c s w o l f n i e r u t u f f o e u l a V c i s n i r t n I , y l g n i d r o c c A

Maturity Period (n)

s r a e Y 5 =

Redemption Value (RV)

0 0 0 , 1 . s R =

Annual Interest (I)

`

(14%,5)

`

`

(14%,5)

`

`

`

`

`

% 2 6 .

4 1 = 6 8 .

5 2 0 , 1 / 0 5 1

Current yield

= e c i r P / t s e r e t n I l a u n n A =

(ii) Calculation of Current Yield (CY):

`

e r o f e r e h t , r a p t a e l b a.

0 m0 e0 e, d1 es . r sR i e db nl l oi bw d nM aT %Y 5% 15 s1 i t ea t d a r n no ob pe uh ot cf o ee hc t i ,r e cp ne i h S t

(iii) Calculation of Yield to Maturity (YTM):

Value (Rs.)

34.36 − 25.86 × 34.36

YTM at Rs. 1025.86 can be calculated using interpolation as per the manner given below.

) % 4 1 % 5 1 (

+ % 4 1 =

s i M T Y e 6 h t 0 3 , 0 . n 4 0 3 o , 0 i 1 , t 1 a l o p r e t % % n 5 4 i 1 1 y B

Yield

N O I T A U L A V Y T I R U C E S

4.8

% 7 4 2 .

4 1 = %

+ % 4 1 =

8.5 34.36

Q.5 A bond is held for a period of 45 days. The current discount yield is 6 per cent per annum. It is expected that current yield will increase by 200 basis points and current market price will come down by Rs. 2.50.

Calculate (i) Face Value of the Bond (ii) Bond Equivalent yield.

[May 2017] [4 Marks]

e h t f i d n o b e h t f o e c i r P

(i)

1 . e R e b d n o b f o e u l a v e c a F e h t t e L

Ans.:

% 8 s i d l e i y t n e r r u c

% 6 s i d l e i y t n e r r u c

Formula

1

1

1

45   8 100 × 360   

5 2 9 9 .

0 =

0 0 9 9 .

0 =

45   6 100 × 360   

 discount rate days to maturity  ×   100 360  

l aa su i t c sa e t e a h r t tf s i e , r d e t o n h i t ne i m ey s r a a et r i c n nu i sg i n s i a y bp l 0p 0a 2y ob t , e er uo df e er ce i h r pT . d5 n2 o0 b0 . n0 i . ee cR nf eo r e e f s f i a d e r ec he Td 0 0 0 , 1 . s R = d n o B e h t f o e u l a V e c a F d l e i y t n e l a v i u q E d n o B

(ii)

0 0 0 , 1 . s R =

e b l l i w d n o b e h t f o e u l a v e c a f e h t 0 5 .

2 . s R s i e c n e r e f f i d

2.5 ×1 0.0025

e h t f i d n o b e h t f o e c i r P % 8 s i d l e i y t n e r r u c

% 6 s i d l e i y t n e r r u c

0 0 .

0 9 9 = 0 0 9 9 .

0 × 0 0 0 , 1

1000 − 992.50 360 × × 100 992.50 45

1000 − 990 360 × × 100 990 45

) Y E B ( d l e i Y t n e l a v i u q E d n o B

0 5 .

2 9 9 = 5 2 9 9 .

0 × 0 0 0 1

0 0 0 , 1 . s R s i e u l a V e c a F n e h W = Y E B

% 8 0 .

8 =

% 5 4 0 .

6 =

FV − V 360 × × 100 V Days to Maturity

Q.6 Bright Computers Limited is planning to issue a debenture series with a face value of ` 1,000 each for a term of 10 years with the following coupon rates: Years 1-4 5-8 9-10

Rates 8% 9% 13%

N O I T A U L A V Y T I R U C E S

4.9

The current market rate on similar debenture is 15% p.a. The company proposes to price the issue in such a way that a yield of 16% compounded rate of return is received by the investors. The redeemable price of the debenture will be at 10% premium on maturity. What should be the issue price of debenture?

PV @ 16% for 1 to 10 years are: .862, .743, .641, .552, .476, .410, .354, .305, .263, .227 respectively.

[May 2016] [5 Marks] t s e r . e e t r n u i t fn o e eb ue l d a f vo tn n ei o s t e p r pm fe o d e mr uf so ee hl u t a ev bt ln l i e ws e sr e p r ud t n n a es br ea de ey h0 t 1 fg o n er i cu i r pd s et un se s i m ey ha Tp

Ans.:

0 0 1 , 1 . s R = ) r a e Y h t 0 1 s ( r a e Y 0 1 % = 6 1 =

Interest

0 3 1 . s R = % 3 1 @ 0 0 0 , 1 . s R = ) s r a e Y 2 t x e N (

Interest

0 0 9 8 . . s s R R = = % % 8 9 @ @ 0 0 0 0 0 0 1 , , 1 . . s s R R = = ) ) s s r r a a e e Y Y 4 4 t t x s e r N fi ( (

Interest

Redemption Value Maturity

de ob i d r l e pu eo hw t t i t, u e r oo hf ge ur oe rh hT t . tn n o at i t s s ne ou cq te. o hm ntr o nf ei r n r a a tel v r u i a g b pe a t tr s ag e n si r r e w t o t n o c i l l eao f he f t e uh fl o at svn wti e onv e fls l ne o i rs hpo set a r che t t edt hn e Tab

YTM

6 9 .

8 6

PV

4 4 .

9 5

3 4 7 .

0

8 2 .

1 5

1 4 6 .

0

6 1 .

4 4

2 5 5 .

0

4 8 .

2 4

6 7 4 .

0

0 9 .

6 3

0 1 4 .

0

6 8 .

1 3

4 5 3 .

0

5 4 .

7 2

5 0 3 .

0

9 1 .

4 3

3 6 2 .

0

1 5 .

9 2

7 2 2 .

0

0 7 .

9 4 2

7 2 2 .

0

0 0 1 , 1

(RV)

PVF @ 16% 2 6 8 .

0

Cash outflow (Rs.) 0 0 0 0 0 0 0 0 0 0 3 3 8 8 8 8 9 9 9 9 1 1

0 0 1 2 3 4 5 6 7 8 9 1 1

Years

.

9 2 .

6 7 6

f o e c i r p a t a s e r u t n e b e d e h t e u s s i d l u o h s y n a p m o c e h T

676.29

` Q.7 Consider two bonds, one with 5 years to maturity and the other with 20 years to maturity. Both the bonds have a face value of ` 1,000 and coupon rate of 8% (with annual interest payments) and both are selling at par. (i) Assume that the yields of both the bonds fall to 6%, whether the price of bond will increase or decrease?

N O I T A U L A V Y T I R U C E S

4.10

(ii) What percentage of this increase/decrease comes from a change in the present value of bond’s principal amount and what percentage of this increase/decrease comes from a change in the present value of bond’s interest payments?

[May 2009] [8 Marks] (i)

ot h t i sw l l a d f n do l b e i e y h et f ho t ee ci c nr i p S n .i d e es t a a l e e r r c yn l i e e s . h r r e e T v. h e ns g i i a h ee r e r a b c di nl l l i e l w i l i y d dwo s nd i r an e dop nby ofi t bo r feu o t ca i er cpm i e r r phe t h e, g h% i T6h

Ans.:

If yield falls to 6% `

`

(6%,5)

(6%,5)

Increase in price

=

`

9 2 .

4 8 0 , 1

`

9 2 .

4 8 . s R

0 3 .

7 4 7 + 9 9 .

6 3 3 = ) F 3 I 7 V 4 P .

7 × 0 0 × 0 0 0 0 , 1 0 , 1 + ( + ) 4 2 1 2 .

4 × 0 8 ( = =

A F I V P × 0 8

Price of 5 years bond

` `

=

9 3 .

9 2 2 , 1

`

`

(6%,20)

(6%,20)

Increase in price 9 3 .

9 2 2 . s R

0 8 .

1 1 3 + 9 5 .

7 1 9 = ) F 8 I 1 V 1 3 P . × 0 0 × 0 0 0 0 , 0 1 , 1 + ( + ) 9 9 6 4 .

1 1 × 0 8 ( = =

A F I V P × 0 8

Price of 20 years bond

`

`

) (

(ii) Price increase in Bond: a Due to change in the present value of bond’s principal amount: F I V P [ × l a p i c n i r P =

0 ] ).

7 5 , 6 % 86 .

F (s I V R P = ] − )6 5 ,0 % 8 66 ( .

0 3 7 4 7 .

0 [ × 0 0 0 , 1 =

Price of 5 years bond

Percentage Increase Rs. 66.70 × 100 = 79.13% Rs. 84.29

F I V P [ × l a p i c n i r P =

] )0 03 2 ,. % 87 9 F (s .

I V R P = − ] )5 0 24 , 1 % 62 ( .

0 8 1 1 3 .

0 [ × 0 0 0 , 1 =

Price of 20 years bond

Percentage Increase % 2 4 .

2 4

) (

Rs. 97.30 × 100 = Rs. 229.39

b Due to change in the present value of bond’s Interest amount: ] )9 5 , 5 % 8.

7 A (1 F .

I s V R P = − ] )7 5 , % 2 69 A (.

9 F 3 I V 4 P 2 [ 1 × 2 . t 4 s [ e r × e t 0 n 8 I = =

Price of 5 years bond

Percentage Increase Rs. 17.59 × 100 = 20.87% Rs. 84.29

] )4 01 2. , % 82 3 A (1 F .

I s V R P = − ] )1 0 28 , % 61 8 A (9 .

F I V 9 9 P 6 [ 4 × .

1 t 1 s e [ r × e t 0 n 8 I = =

Price of 20 years bond

Percentage Increase Rs. 132.14 × 100 = 57.58% Rs. 229.39

CRACKER Strategic Financial Management AUTHOR

: K.M. BANSAL , ANJALI AGARWAL

PUBLISHER

: TAXMANN

DATE OF PUBLICATION : AUGUST 2021 EDITION

: 4TH EDITION

ISBN NO

: 9789391596583

NO. OF PAGES

: 368

BINDING TYPE

: PAPERBACK

Rs. 675 | USD 40

Description Taxmann’s CRACKER for Strategic Financial Management is prepared exclusively for the Final Level of Chartered Accountancy Examination requirement. It covers the entire revised, new syllabus as per ICAI. The Present Publication is the 4th Edition for CA-Final | New Syllabus, authored

by CA (Dr.) K.M. Bansal & CA Anjali Agarwal, with the following noteworthy features: u

Strictly as per the New Syllabus of ICAI

u

[Trend Analysis] for the last six attempts

u

[Marks Distribution] Chapter-wise marks distribution

u

[Comparison with Study Material] Chapter-wise comparison with ICAI Study Material

u Coverage

n

of this book includes:

All Past Exam Questions

l CA

l

CA Final January 2021 (New Syllabus) – Suggested Answers

l

CA Final July 2021 (New Syllabus) – Suggested Answers

n

Final November 2020 (New Syllabus) – Suggested Answers

Questions from RTPs and MTPs of ICAI

u [Arrangement

of Question] Questions in each chapter are arranged ‘sub-topic’ wise with additional solved practice questions

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