QUESTION 3 (25 MARKS) a. Find the present value of RM5,325 to be received in one period if the rate is 6.5%. (2 marks) b. Badrul has deposited RM7,000 in a guaranteed investment account with a promised a rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to make? (2 marks) c. Mr Tan buy an annuity which will pay him RM12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rate? Show calculation. (3 marks) d. What is the future value of RM1,000 a year for five years at a 6% rate of interest? Show calculation. (3 marks) e. Metro Inc. has been a hot stock the last few years but is risky. The expected returns for Metro Inc. are highly dependent on the state of the economy as follows: State of Economy Depression Recession Mild Slowdown Normal Broad Expansion Strong Expansion Probability .05 .10 .20 Metro Inc. Returns -50% -15% 5% .30 .20 .15 15% 25% 40% Required: Based on the above information, calculate for Metro Inc: i. The expected return (6 marks) ii. The variance (6 marks) iii. The standard deviation (3 marks) CONFIDENTIAL/4