Am stuck in this assignment. Kindly provide answers
Porter is a quoted company which operates a fleet of trucks and provides a transport network for a number of very large businesses, such as food manufacturers who need to make bulk deliveries to supermarket chains. The company is considering investing in a risky new project. Many of the goods transported by the company arrive by ship and most major ports have rail links which make it possible for shipping containers to be loaded directly on to trains. Porter is considering creating an "inland port", which will involve buying a large piece of land in the centre of the country, adjacent to a major railway line which can be accessed by rail from several ports. Goods arriving by ship for Porter's customers will be taken by mail to this inland port facility where they will be offloaded from trains and on to trucks. The trucks will then take the goods directly to their final destination. The cost of establishing this facility will be substantial, but it will offer a faster and more efficient service. Porter will save huge amounts of money and fuel. The use of this method will also reduce emissions and so products transported in this way will have a much lower carbon footprint. There are some significant risks associated with this proposal. It will be difficult to recruit and retain sufficient drivers to work from the new location. The company will be exposed to the health and safety risks that are presently borne by the port operators. The IT systems may not cope with the volumes of time-critical data that will have to be processed in order to keep containers moving efficiently. Any disruption to either the road or rail networks, perhaps due to bad weather, will have an impact on performance. Porter will have to borrow heavily in order to finance the investment. If the inland port is not a commercial success then Porter may not survive as an independent entity. The directors have estimated that there is a 25% chance of commercial failure of the project. The project has a beta of 0.55. The risk free rate is 4% pa. and the equity risk premium is 9% p.a. The project offers an estimated return of 26% p.a. (i) Calculate the required rate of return for the project. [2] (ii) Explain how an apparently risky project can have a relatively low required rate of return. [7] (iii) Discuss the factors that will affect Porter's share price on the announcement of its intention to invest in the project. [6] (iv) Discuss the factors that may deter the directors of Porter from investing in the project, even if they are confident that the shareholders would wish them to proceed. [5] [Total 20]An institution has a liability to pay $15,000 per annum, half-yearly in arrears, forever. (i) Calculate the present value and volatility of the liability at 8% pa effective. [6] (ii) Calculate the duration of the liability at 8% pa effective. [1] The following two stocks are available for investment: (A) A special 5-year stock, redeemable at par, that pays a coupon of 5 per 100 nominal at the end of the first year rising, by 2% pa compound, to 5x 1.02* at the end of the fifth year. (B) Ann-year zero-coupon bond, redeemable at par. The institution chooses to invest equal amounts of cash in Stock A and Stock B. (iii) If the institution requires that the duration of the assets must equal the duration of the liabilities, show that n, the term of the zero-coupon bond, must equal 22 years if interest rates are 8% pa effective. [8] (iv) Without doing any further calculations, explain whether the institution has managed to implement an immunisation strategy. [2] [Total 17]An institution has a liability to pay $15,000 per annum, half-yearly in arrears, forever. (i) Calculate the present value and volatility of the liability at 8% pa effective. [6] (ii) Calculate the duration of the liability at 8% pa effective. [1] The following two stocks are available for investment: (A) A special 5-year stock, redeemable at par, that pays a coupon of 5 per 100 nominal at the end of the first year rising, by 2% pa compound, to 5x 1.02* at the end of the fifth year. (B) Ann-year zero-coupon bond, redeemable at par. The institution chooses to invest equal amounts of cash in Stock A and Stock B. (Hii) If the institution requires that the duration of the assets must equal the duration of the liabilities, show that n, the term of the zero-coupon bond, must equal 22 years if interest rates are 8% pa effective. [8] (iv) Without doing any further calculations, explain whether the institution has managed to implement an immunisation strategy. [2] [Total 17]
