Mr. Joko, CFA and Mrs. Shinta, CFA, are senior analysts working in PT Kaya Raya. PT...

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Mr. Joko, CFA and Mrs. Shinta, CFA, are senior analysts working in PT Kaya Raya. PT Kaya Raya specializes in fixed income and equity securities. Currently, they are evaluating the following securities: BABE030 500 3.00% 3.00% 1 to 5 5 to 80 3.500 Bond MK3 Securities Just paid dividend First dividend growth Second dividend growth First growth years Second growth years Price Securities Face Value Issued Maturity Coupon rate 9.00% Coupon payment quarterly Price 1,950,000,000 Remark Normal Normal Callable They strongly believe that the appropriate market bond yield is 9 percent per annum and the appropriate required rate of equity return is 16 percent per annum. 4 Required: a) Evaluate which securities are mispriced so that Mr. Joko and Mrs. Shinta can exploit the arbitrage opportunity? (35 points) b) Explain further considerations when Mr. Joko and Mrs. Shinta analyze those securities! (15 points) 3,000,000,000 5-Nov-2020 5-Nov-2040 8.00% annual HEBAT112 1.000 20.00% 3.00% 1 to 3 4 to 10 8.000 Bond SF3 2,000,000,000 5-Nov-2020 5-Nov-2035 7.00% 2,750,000,000 JOSS052 semi-annual 1,700,000,000 0 0.00% 0.00% N/A N/A 6,700 Bond LA4 2,000,000,000 5-Nov-2020 1-Jul-2050 Mr. Joko, CFA and Mrs. Shinta, CFA, are senior analysts working in PT Kaya Raya. PT Kaya Raya specializes in fixed income and equity securities. Currently, they are evaluating the following securities: BABE030 500 3.00% 3.00% 1 to 5 5 to 80 3.500 Bond MK3 Securities Just paid dividend First dividend growth Second dividend growth First growth years Second growth years Price Securities Face Value Issued Maturity Coupon rate 9.00% Coupon payment quarterly Price 1,950,000,000 Remark Normal Normal Callable They strongly believe that the appropriate market bond yield is 9 percent per annum and the appropriate required rate of equity return is 16 percent per annum. 4 Required: a) Evaluate which securities are mispriced so that Mr. Joko and Mrs. Shinta can exploit the arbitrage opportunity? (35 points) b) Explain further considerations when Mr. Joko and Mrs. Shinta analyze those securities! (15 points) 3,000,000,000 5-Nov-2020 5-Nov-2040 8.00% annual HEBAT112 1.000 20.00% 3.00% 1 to 3 4 to 10 8.000 Bond SF3 2,000,000,000 5-Nov-2020 5-Nov-2035 7.00% 2,750,000,000 JOSS052 semi-annual 1,700,000,000 0 0.00% 0.00% N/A N/A 6,700 Bond LA4 2,000,000,000 5-Nov-2020 1-Jul-2050

Answer rating: 100% (QA)

To evaluate which securities are mispriced we need to compare the expected returns based on the required rates of return and the current prices of the ... View the full answer