Question 1

(a) If you have $5,000 now and plan to invest in 1Malaysia Fund (1MF). The 1MF has 5 years to maturity and offers a return of 12% per year with monthly compounding. How much would your investment accumulate to after 5 years? [5 marks]

(b) David Villa will receive $10,000 three years from now. He can earn 8% on this investment, so the appropriate discount rate is 8 percent. What is the present value of this future cash flow? [5 marks]

(c) How many years it will take for $2,500 to become $8,865 if it is deposited and earns 12% per year compounded quarterly? [5 marks]

(d) If you receive a 9 percent $100,000 loan that requires you to make yearly payments for 20 years. How much is the yearly loan payments be? [5 marks]

(e) You come across two banks offering different compounding interest rates. Public Bank offers 12 percent compounded semi-annually while Maybank offers 11.8 percent compounded monthly. Which bank should you deposit in? [5 marks]

(f) Your father has just won a jackpot lottery. He is given the option of receiving a total of $2.5 million now or he can elect to be paid $200,000 at the end of each of the next 20 years. If your father can earn 5% annually on his investments, from finance point of view which option should he take? [5 marks]