Question 1(18 marks)

1. Which company would you expect to have a higher PE ratio, Tencent or HK MTR (train)?

(4 marks)

2. Which company would you expect to have a higher profit margin, an appliance manufacturer or a grocery store? Explain. (4 marks)
3. Which company would you expect to have a higher current ratio, a jewelry store or an online bookstore? Explain. (10 marks)

Question 2 (20 marks)

Carlson is currently 35 years old and would like to retire at age 60 (i.e. 25 years later). He wants to have enough saving when reaching 60 to support his post retirement life for 28 years (i.e. he expects he will die at around 88 years old). He would like to seek for your assistance in formulating his retirement plan.

Required:

1. Based on the budget constructed, he estimated that he would spend $350,000 every year during his post retirement life. Assuming he could earn a 7% return per annum during his post retirement period, calculate how much retirement saving Carlson needs to have when he reaches 60 years old.
2. At the moment Carlson has a saving of $800,000. Assuming he could earn a 5% return per annum for the next 25 years:

1. Would Carlson have enough retirement saving at 60 as calculated per (2) above?
2. If not, what is the approximate annual return Carlsons saving needs to achieve if he wants to have enough retirement saving at 60 as calculated per (1) above? For this part, please use Appendices A to D to find out the approximate annual return.
3. By using a financial calculator, calculate the exact annual return required if Carlson would like to have enough retirement saving at 60 as calculated per (1) above. For this part, please use a financial calculator. (9 marks)

3. Carlson would like to make use of his current saving of $800,000 plus contributing a fixed amount of annual saving at the end of the coming 25 years to achieve the retirement saving as calculated per (1) above.

Calculate the annual saving Carlson needs to contribute during the next 25 years, assuming both the saving of $800,000 and the annuity could earn a 5% return per

annum. (7 marks)