Question # 01 Sadiq Company is a local fund managing business that has been operating in the Pakistani industry for the past 15 years. On May 12, 2020, the company hired you as a ‘Personal Advisor’ to Class – 1 (C1) portfolio investors who are the individuals with a minimum investment size of PKR100,000. Diana’s C1 portfolio is of critical value to the business as it brings avenues of diversified investment with a flexible risk appetite for the fund manager as well as the investors. Being personal advisor, your assigned task on the first day of your job is to read out following pre-proposal investment queries, sent-in by the potential investors to the fund manager, and prepare a formal response document: [2 marks] 

a) Being an individual investor, if I along with other investors lose faith in the safety and progression capacities of Pakistani financial institutions then how will it affect our standard of living? 

b) On 9th May 2020, Fauji Cement Company Ltd.’s (FCCL) share was trading at PKR16.81 per share. How would you define this value i.e. PKR 16.81? In general, how do you think a Chief Executive Officer (CEO), who plans to exercise thousands of rupees in derivatives before retirement, would expect the actual stock value of FCCL to move against the intrinsic stock value - be over, equal or under it? 

c) “Short-term interest rates are more volatile than long-term interest rates.” Do you agree? Explain. 

d) Please put yourself in my shoes then understand and respond to the scenario that I state as “Assume you have a keen interest in the stocks of the Hub Power Company Limited (HUBC) and you come across two honest estimates about the intrinsic value of HUBC’s share. Estimate 1 comes from someone who has deep insight into the HUBC business and its stock trends; the Chief Financial Officer (CFO) of HUBC. Estimate 2 comes from your classmate, who also happens to be your neighbor”. If there was a difference in the two estimates that you received from the two different sources, which one would you be certain about? Why?