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:

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.

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)

Securities BABE030 HEBAT112 JOSS052 Just paid dividend 500 1 0 First dividend growth 3.00% 20.00% 0.00% Second dividend growth 3.00% 3.00% 0.00% First growth years 1 to 5 1 to 3 IN/A Second growth years 5 to 80 4 to 10 N/A Price 3,5 8 6,7 Securities Bond MK3 Bond SF8 Bond LA4 Face Value 3,000,000,000 2,000,000,000 2,000,000,000 Issued 05-Nov-20 05-Nov-20 05-Nov-20 Maturity 05-Nov-40 05-Nov-35 01-Jul-50 Coupon rate 8.00% 7.00% 9.00% Coupon payment annual semi-annual quarterly Price 2,750,000,000 1,700,000,000 1,950,000,000 Remark Normal Normal Callable Securities BABE030 HEBAT112 JOSS052 Just paid dividend 500 1 0 First dividend growth 3.00% 20.00% 0.00% Second dividend growth 3.00% 3.00% 0.00% First growth years 1 to 5 1 to 3 IN/A Second growth years 5 to 80 4 to 10 N/A Price 3,5 8 6,7 Securities Bond MK3 Bond SF8 Bond LA4 Face Value 3,000,000,000 2,000,000,000 2,000,000,000 Issued 05-Nov-20 05-Nov-20 05-Nov-20 Maturity 05-Nov-40 05-Nov-35 01-Jul-50 Coupon rate 8.00% 7.00% 9.00% Coupon payment annual semi-annual quarterly Price 2,750,000,000 1,700,000,000 1,950,000,000 Remark Normal Normal Callable