Duration: TWO (2) Hours QUESTION 1 (20 marks) (a) Your brother has come to you for advice. He is about to enter UTAR and has two options open to him. His first option is to study engineering. If he does this, his undergraduate degree would cost him RM11,500 a year for four years. After graduated, he would need to gain two years of practical experience before he can practice as a professional engineer. He is expected to earn RM34,000 per year for that two years. After that, he will be fully qualified and can eam RM42,000 per year for 36 years. His other alternative is to study business. If he does this, he would pay RM14,000 a year for three years and then proceed to obtain his one-year master degree prior to working. The master study will cost RM20,000 a year. After that, he would earn RM38,000 per year for 38 years. The effort involved in the two careers is the same, so he is only interested in the earings the jobs provide. All earnings and costs are paid at the end of the year. If the opportunity cost is 5 percent, advise him which option to accept with detailed workings shown (10 marks) (b) You own a portfolio consisting shares of three public listed firms. The details of these securities and his asset allocation are provided below: Securities Number of Market Price per Beta Actual Shares share Coefficient return (RM) (%) F 25,000 2.00 0.75 11.00 50,000 1.80 1.20 16.60 M 10,000 1.00 0.60 10.00 The market risk premium is 10 percent and it is established that the interest rate on the Malaysian Treasury bill is 4 percent. Use the capital asset pricing model to evaluate the performance of each security and determine the market value based portfolio beta. (10 marks)