5. Risk and return a. Your parents know you are studying a bit of finance this year. Your mother (who is employed by Auckland Airport) has her entire retirement portfolio invested in Auckland Airport shares. Required Explain to your parents why this retirement portfolio is a bad idea. (4 marks) b. The following events can be classified as mostly systematic or mostly unsystematic risks. i. An airplane crash-lands resulting in hundreds of people dying and vast damage to the airport facilities and the surrounding infrastructure. ii. Donald Trump wins another term as the president of the United States of America. iii. Gas prices unexpectedly increase. iv. Short term interest rates increase unexpectedly. v. The interest rate a company pays on its long-term borrowing is increased by its bank. Required Write "Systematic risk" and beside it write the numbers (i, ii, iii, iv and/or v) of the above events that are examples of systematic risk Write "Unsystematic risk" and beside it write the numbers of the above events that can be classified as unsystematic risk. (5 marks) c. Imagine that you have started a new job at Communications Technologies Ltd. You have helped evaluate a proposed project - it will have a positive net present value (NPV) if it is financed entirely by equity. Your boss knows that you studied finance and asks you the following question: If the project can sensibly be financed partly by debt with an interest rate of 9% and the firm pays 28% tax, will the project remain acceptable? Required Answer your boss's question: Will the project remain acceptable? Explain. (4 marks)