a) With a 7% discount rate, determine the value on 1 January 2023 of the following cash flows: b) Ravindran has been depositing money at the end of each year into an account drawing 6.5% compound interest per annum. Calculate the balance in the account at the end of year four if he deposited the following amounts: (5 marks) c) You invest RM2,500 at a variable rate of interest. Initially, the rate is 5% compounded annually for the first year, and the rate increases half percent annually (0.5%) for five years. Compute how much will you have in the account after five years. (3 marks) d) Mr Chong is planning to start saving for his son's college education fund. When the time comes, he wishes to accumulate RM45,000 at the end of 17 years. Assuming that his savings account will pay 6.5% compounded annually, calculate how much would he will have to deposit if: i) he wants to deposit an equal amount at the end of each year. ii) he wants to deposit one lump sum today. (8 marks) e) An investment will pay RM500 in three years, RM700 in five years, and RM1,000 in nine years. If the opportunity rate is 6%, calculate the present value of this investment. (3 marks) QUESTION 3 (25 MARKS) a) Find the expected return for each of the stock. (6 marks) b) Compute the variance and standard deviation for stock A, B and C. Show your working. (12 marks) c) i) Identify which pair of the combinations A, B and C shows a positive correlation. (2 marks) ii) Explain which pair shows a negative correlation. QUESTION 4 (25 MARKS) Dinar Berhad is located in Bayan Lepas where a market is held regularly. It decided to buy a bus to take passengers to and from the market. It is estimated that 200 tickets could be sold a day for RM4 each. Dinar Berhad intended to run the bus for three years. It had the option of buying a newer bus, bus A, or an older bus, bus B. Dinar Berhad knew that the older bus would be less reliable and there would be more days each year when the bus could not run because of breakdowns and maintenance. It would also require more money to be spent on repairs. The following estimated information was available. Other running costs were expected to the same for both buses. Dinar Berhad uses a cost of capital of 10%. a) Calculate the difference in NPV between purchasing bus A and bus B. (10 marks) b) Assuming that the NPV for bus A is RM18,900, calculate the NPV of purchasing bus B. (3 marks) Additional information Assume that the Accounting Rate of Return (ARR) of purchasing bus A was calculated as 24.56%. The total net cash flows of year 1 to 3 inclusive for bus B amounted to RM74,300. c) Calculate the ARR of purchasing bus B. (4 marks) d) Advise Dinar Berhad which bus it should buy. Justify your answer. (6 marks) e) State one method of investment appraisal (other than NPV and ARR) which a business could use. (2 marks)
