Chapter 4 

Valuation of securities bonds and equities

Review Questions...

A. Objective Type and Multiple Choice Questions   (1Mark Questions)

1. State whether each of the following statements are True or False: 

(1) If the required rate of return is higher than the interest rate payable on bond, the value of the bond shall be higher than its face value. 

(ii) If the required rate of return is lower than the interest payable on bond, the value of the bond shall be higher than its face value. 

(iii) If the investor's required rate of return and coupon interest rate are the same , the value of the bond shall be equal to its face value. 

(iv) The value of an equity share is a function of cash inflows expected by investors and the risk associated. 

[ Ans . (1) False; (ii) True; (iii) True; (iv) True] 

B. SHORT ANSWER TYPE QUESTIONS 

1. What do you mean by book value and market value? 

2. What is meant true concept of value? 

3. What is the relationship between the required rate of return and coupon interest rate. 

4. Write a short note on valuation of zero coupon bond. 

C. LONG ANSWER TYPE QUESTIONS ( 2 MARKS QUESTIONS) 

1. Explain in detail the method of valuation of an equity share. 

2. How will you determine the value of a bond with a maturity period? 

3. What do you understand by bonds in perpetuity? How are they valued? Explain 

4. Is the valuation of preference shares different from the valuation of bonds? Illustrate. 

5. Discuss the procedure of valuation of bonds. Exercises .... Ex . 1 . An investor is considering the purchase of a 12 % 1000 debenture redeemable after 5 years at par . The investor's required rate of return is 14 % . What should he be willing to pay now to purchase the debenture? 

[ Ans . 930.96 ] 

Ex . 2 .  Mr. X has a perpetual bond of the face value of 1,000. He receives an interest of 90 annually. What would be its value if the required rate of return is 15 % 

[ Ans . 600 ] 

Ex . 3 . Face value of a 15 % debenture is 1,000. The maturity period of the debenture is 5 years. What is the value of the debenture if the required rate of return is; (a) 15 % and (b) 12 % 

[ Ans . (a) ₹ 1,000, (b) ₹ 1108 ]


Type- Nayan Moni Deka

Morigaon Assam 






Post ID : DABP004971