BBF201/03 Introduction to Financial Management

QUESTION 4 (25 MARKS) a) You are considering a sales job that pays you on a commission basis or a salaried position that pays you RM50,000 per year. Historical data suggests the following probability distribution for your commission income. Decide which job has the higher expected income. Commission Insurance Commission of Unit Trust Agent Agent Probability of Occurrence RM15,000 RM80,000 0.15 RM35,000 RM38,000 0.20 RM48,000 RM45,000 0.35 RM67,000 RM15,000 0.22 RM80,000 RM77,000 0.18 (7 marks) b) The following is historical data for Security A and B. i. You are required to calculate the expected return and standard deviation for the securities A and B. Year Return for Sec A Return for Sec B 1 0.25 0.16 2 0.25 0.15 3 0.35 0.20 4 0.15 0.12 5 0.10 0.09 (14 marks) ii. Justify whether security A is the riskier than security B. (4 marks)