Question
Mr. Wong aged 50 is planning to retire after 10 years. Currently, he has total savings of $3 million. He is thinking about which of
Mr. Wong aged 50 is planning to retire after 10 years. Currently, he has total savings of $3 million. He is thinking about which of the following investment plans is the best for his selection.
10-year time deposit with annual interest rate 3%.
Buy a new apartment worth $3 million. He believes that he can earn rental fee of $10,000 per month by renting out the apartment. Besides, he thinks the value of the apartment will worth $3.5 million after 10 years.
To set up an investment portfolio which consists of 40% investment in Bond, and the rest of the savings to be invested in stock. Detail information of the portfolio will be as follow:
10-year Bond: Face value $1,000, the current selling price is $1,000 per bond and the annual coupon of the bond is $60.
Stock: Current selling price is $2,000 per share. The expected annual dividend is $7 per share and the expected market price of the stock after 10 years will be $3,200 per share.
The required annual return by Mr. Wong is 3%.
Suppose all the current income earned from investment will be deposited into the bank and may earn 3% annual interest rate.
Required:
(1) | For each of the investment options, how much will he have after 10 years? (detail workings must be shown) | (25 marks) |
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(2) | Analyze each of the investment options and determine which one do you suggest Mr. Wong to invest. | (10 marks) |
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