BFN1024 Principle of Finance January 2020 a) Assume the total cost of college education will be RM320,000 when your child enters college in 18 years. You presently have RM75,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's college education? (4 marks) b) Mira Pizah has just graduated from high school and has received an award for RM8,000. She would like to deposit the money in an interest earning account until she graduates from college (i.e., four years from now). In addition, in the second year of her college, she will receive another award of RM3,000 which she will also deposit in the account. In her search for the highest interest earning account, she has found that Bank Kaya Raya pays 8 percent interest compounded semiannually. What is the effective interest rate of return for Bank Kaya Raya? i) (4 marks) ii) How much will Mira Pizah have in her account upon graduation from college? (4 marks) c) Aida Tuah is 30 years old and is saving for her retirement. She is planning on making 36 contributions to her retirement account of the next 36 years. The first contribution will be made today (t = 0) and the final contribution will be made 35 years from today. The retirement account will earn a return of 10 percent a year. If each contribution she makes is RM3,000, how much will be in the retirement account 35 years from now? (4 marks) d) You have provided your friend with a service worth RM8,500. Your friend offers you the following cash flow instead of paying RM8,500 today. Should you accept his offer if your opportunity cost is 8 percent? Year Cash Flow RM4,000 3,000 2,000 4 1,000 (4 marks)