Question:
A candidate for mayor in a small town has allocated$40,000 for last-minute advertising in the days precedingthe election. Two types of ads will be used:radio and television. Each radio ad costs $200 andreaches an estimated 3,000 people. Each televisionad costs $500 and reaches an estimated 7,000 people.In planning the advertising campaign, the campaignmanager would like to reach as many peopleas possible, but she has stipulated that at least 10 adsof each type must be used. Also, the number of radioads must be at least as great as the number of televisionads.
How many ads of each type should beused? How many people will this reach?
Case Study - "General Bank"
Questions:
1. Using the Capital Asset Pricing Model (CAPM), what was General Bank's required rate of return on common stock?
2. Consider the period from 2004-2013. Use the Gordon Growth Model to determine the price of General Bank's common stock today (i.e. 2014).
3. What effect does the stock's required rate of return have on the calculation of its stock price when using the Gordon Growth Model? (No calculation needed)
4. If you felt that General Bank's last year dividend of Rs.2.20 was going to be paid in that constant amount throughout the remainder of the company's life (i.e. zero growth), what would be the value of the stock today?
5. Based on current year expected dividend, what is the relationship between the present value of a dividend paid one year from now, a dividend paid ten years from now and a dividend paid one hundred years from now?
Case Study - "PPA - Pakistan Peoples' Airline"
Questions:
1. Ignoring floatation costs, what will the bonds sell for today if PA decides to issue the bonds with a maturity of 10 years? What will the price be if the bonds have a maturity of 20 years? 30 years?
2. If the bonds are issued with 10 years to maturity and the day after they are issued, the market interest rates increase to 12%, what will be the price of Pakistan Airline's bonds? What if interest rates drop to 8%?
3. If the bonds are issued with 20 years to maturity and the day after they are issued, the market interest rates increase to 12%, what will be the price of Pakistan Airline's bonds? What if interest rates drop to 8%?
4. If the bonds are issued with 30 years to maturity and the day after they are issued, the market interest rates increase to 12%, what will be the price of Pakistan Airline's bonds? What if interest rates drop to 8%?
5. Based on your answers to questions 2 through 4, what is the relationship between time to maturity and the price of the bond? (Theoretical concept required).
6. Based on your answer to question 1, what is the relationship between current interest rates and the coupon rate? (Theoretical concept required).
Attachment:- case- general bank and Pakistan peoples airline.rar