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BBCF4023 Investment Analysis

ASSIGNMENT 2 (15%)

ANSWER ALL QUESTIONS:

1.          What is the accumulated value of RM10,000 invested over 5 years at 12% per annum compounded annually?

2.          What is the equivalent value in todays money of RM25,000 expected to occur 10 years from today given cost of capital is 8% p.a., compounding semi-annually?

3.          Owen would like to purchase a house in 3 years. He save RM3,000 every 6 months starting at the end of the first period to provide for that purpose. If money is worth 12% per annum. How much would he have by the time he need to pay the deposit?     

4.          Charlotte would like to start up her own food truck business. While doing her business plan, she estimated her dream second hand food truck to cost around RM30,000. If she started saving today a sum of RM4,000 every quarter at 10% compounding rate, will she be able to buy the truck after 2 years?

5.          How much should you pay for an investment that will give you a return of RM2,000 for every quarter indefinitely if cost of capital is 12% per annum compounded quarterly for the following scenarios:

i.             Just after the dividend has been paid

ii.           Just before the dividend is due to be paid

6.          Mountain Oak Institute would like to set up a scholarship that pays outstanding students RM20,000 in tuition fees. Given the cost of capital is 10% and the institute expect the scholarship to last forever, how much should be set aside today if the scholarship is expected to start in 3 years time?

7.          Calculate the Net Present Value of a RM30,000 initial investment that is expected to generate a cash flow of RM13,000 at constant prices, at the end of each year for 3 years. Assume the nominal cost of capital is 15% per annum and inflation rate is 8% per annum. Should you proceed with the investment?

8.          Chime Music Sdn Bhd has outstanding RM1,000,000 par-value bond with 10% coupon interest rate. The bond has 12 years remaining to its maturity date. If interest is paid annually, find the value of the bond when the required return is:

i.      7%    

ii.      10%  

iii.     13%  

9.          A bond with 5 years to maturity and a coupon rate of 6% has a par value of RM20,000. Coupon is paid semiannually. If your required rate of return is 8%, what is the value of this bond to you?

10.       Eva is considering buying a share from a company. She estimated her cost of equity to be 12%. Calculate how much should she pay for the share if the company promises the following:

i.             Constant dividend of RM2.20 per share every year.

ii.           Constant growth in dividend of 10% indefinitely, and last year dividend is RM1.90 per share.