MGT201 - Financial Management GDB Idea solution (27-11-2012)

Coming Soooooon...... Bond Valuation and Yield on Bond Learning Objective: To understand the application of bond valuation for investment decisions. Learning Outcome: After attempting this GDB, the students would be able to understand the application of bond valuation for investment decisions. The Case: Suppose, you are working as an investment consultant in a consultancy firm and most of your clients are habitual investors, who are maintaining their own portfolios comprising of various combinations of stocks and bonds. Mr. Zahid, a habitual investor comes to you for consulting about adding one more potential investing option to his existing portfolio. Currently, as per your analysis, there are two bonds available in the market with the following data: Bond A Bond B Maturity 3 years 8 years Coupon payment 10% Annual 10% Semiannual Yield 6.23% 9.8% *Note: Interest rate fluctuations are high in the market Required: ·        Suggest Mr. Zahid, who is interested to add only one bond to his portfolio about the suitable bond for his portfolio. ·        Support your choice by elaborating the reason on which the suggested bond is considered as a preferred option.

Important Instructions: 1.       Your discussion must be based on logical facts. 2.       The GDB will remain open for 2 working days/48 hours. 3.       Your answer should be relevant to the topic i.e. clear and concise. 4.       Your discussion should not exceed 60 words. 5.       Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course. 6.       Obnoxious or ignoble answer should be strictly avoided. 7.       Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over. Ø        For detailed instructions, please see the GDB announcement.