BBF302/05 FINANCIAL MANAGEMENT AND ANALYSIS

Need full answer according to marks.

QUESTION 2 (25 MARKS) (UNIT 2) a) Suppose you wish to retire forty years from today. You determine that you need RM50,000 per year once you retire, with the first retirement funds withdraw one year from the day you retire. You estimate that you will earn 6% per year on your retirement funds and that you will need funds up to 25 years after retirement. i) Calculate the amount you must deposit in an account today so that you have enough funds for retirement. (6 marks) ii) Calculate the amount you must deposit each year, starting one year from today, so that you have enough funds for retirement. (6 marks) b) A stock has an expected return of 10.2%, the risk-free rate 4.1% and the market risk premium is 7.2%. Calculate the beta of this stock. (3 marks) Probability Rate of returns State of economy Boom Normal Bust 0.35 0.50 0.15 Stock A 0.24 0.17 0 Stock B 0.36 0.13 0.28 Stock C 0.55 0.09 0.45 c) Base on the table above, you invested 40% on Stock A and B and 20% on Stock C. Calculate the expected return on this portfolio. (10 marks)