a) Mr. Aqil has been awarded a bonus for his outstanding work. His employer offers him a choice of a lump-sum of RM5,000 today, or an annuity of RM1,350 a year for the next five years. He asks your advice on whether to choose a lump-sum or an annuity. Assume the opportunity cost is 9 percent. (5 marks)

b) To expand its business, the HDAF Bhd. would like to issue a bond with par value of RM1,000, coupon rate of 10 percent, and maturity date of 10 years from now. What is the value of the bond if the required rate of return is; i) 7 percent, ii) 10 percent, and iii) 13 percent? Explain the changes to the value of the bond due to changes in required rate of return. (10 marks)

c) Explain the purpose of bond ratings and types of risks associated with bond investment. (5 marks)

d) PJP Bhd. is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect PJP Bhd. to begin paying dividends with the first dividend of RM2 coming 3 years from today. The dividend should grow rapidly at a rate of 10 percent per year during years 4 and 5. After year 5, the company should grow at a constant rate of 5 percent per year. If the required return on the stock is 15 percent, what is the value of the stock today?