QUESTION 3

1. (a) What is the relationship between risk and return? Explain in the context of investment the difference between having a fixed deposit in a bank versus investment in Equities.

1. (b) What is market timing risk? Please explain the meaning of Dollar averaging and what strategy an investor can use to overcome this risk?

1. (c) Lana has been able to accumulate $9,000 in savings from her end of month salary and is thinking of investing this amount plus the regular monthly savings of $250 into a suitable investment. Given her risk profile, the People's Choice Credit Union has been selected as the best financial intermediary in which to place her funds. The credit union has offered her a high-interest savings account with an interest rate of 3.6%pa compounded monthly for the next 4 years for the investment of Lanas accumulated savings and ongoing savings.

What is the expected balance of the high-interest savings account at the end of the 4 year term?