QUESTION 1 a) Nabilah plans to invest in ABC fund in three lump sums with one at the start of each of the next 3 years. She asked you about the likely amount to which the combined payments will have accumulated by the end of the third year. Table below shows the amounts of the lump sums. Year Amount invested Mean rate of return 1 RM50,000 RM30,000 RM20,000 2 Standard deviation rate of return 2% 3% 4% 8% 7% 6% 3 Calculate the mean and variance of the accumulated amount assuming various interest rate of return in each year as shown in the table. (10 marks) b) An investor has RM100,000 to invest in three years. The account balance may be reinvested at the end of either the first or the second years. The yield curve for the first year is given in the table below: Term 1 year 2 years 3 years Spot Rate 7% 8% 8.75% The entire yield curve shifts upward by 2% for the second year and 1.5% for the third year. Considering all possible patterns of investment, find the minimum and maximum accumulation at the end of the three-year investment period. (10 marks) QUESTION 1 a) Nabilah plans to invest in ABC fund in three lump sums with one at the start of each of the next 3 years. She asked you about the likely amount to which the combined payments will have accumulated by the end of the third year. Table below shows the amounts of the lump sums. Year Amount invested Mean rate of return 1 RM50,000 RM30,000 RM20,000 2 Standard deviation rate of return 2% 3% 4% 8% 7% 6% 3 Calculate the mean and variance of the accumulated amount assuming various interest rate of return in each year as shown in the table. (10 marks) b) An investor has RM100,000 to invest in three years. The account balance may be reinvested at the end of either the first or the second years. The yield curve for the first year is given in the table below: Term 1 year 2 years 3 years Spot Rate 7% 8% 8.75% The entire yield curve shifts upward by 2% for the second year and 1.5% for the third year. Considering all possible patterns of investment, find the minimum and maximum accumulation at the end of the three-year investment period. (10 marks)