Question: Please help question 1 and 2 uiueu lui each question are indicated accordingly. QUESTION ONE: *DVL Company has a long-term policy of retaining 45% of
uiueu lui each question are indicated accordingly. QUESTION ONE: *DVL Company has a long-term policy of retaining 45% of its profit for reinvestment purposes. The beta of the company is 1.5. It expects its debt-to-equity ratio to remain constant at 40% and its ROA to be 20%. The market premium and risk-free rate are 9% and 12% respectively. The current dividend issued by the company is Tshs 50 and the company's shares are selling at Tshs 300. DECISION: Would you sell or buy the shares of DVL Company? Why or why not? (Support your decision with informed financial analysis). (30 marks) QUESTION TWO: (1) How is the value of a coupon bond calculated? 12) What is the value of a 9-year bond, Tshs 100,000 par value with a 10% annual coupon, if its required rate of return is 9%? (3) What is the value of the bond described in part (2) if it pays interest serhi-annually, other things being equal? (4) What is approximate YTM of a 6-year, Tshs 100,000 par value bond with a 10% annual coupon, if it sells for Tshs 116,000? (5) What is the yield to call (YTC or HPY) of the bond described in part (4) if the bond can be called after 3 years at a premium of Tshs 6,000? (6) What is the difference between interest rate risk and reinvestment risk? (7) What are yield curves and their 4 uses? (5 marks@7 = 35 marks)
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