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The controller at Sohar University, approached you to advise him where to invest the extra OMR 1,000,000 that will be needed after 5 years from
The controller at Sohar University, approached you to advise him where to invest the extra OMR 1,000,000 that will be needed after 5 years from now to start phase three of construction. The controller, surveyed the market for potential investment opportunities and came up with the following options. Option 1 A portfolio in Muscat Security Market with expected annual retum of 7%. Option 2 Sohar port is issuing 5-year bond, OMR 1,000 par value and 6.8% semi-annual coupon payments. Return on similar assets is 6%. Option 3 A 6.2% time deposit in Bank Sohar compounded quarterly. Option 4 6.0% interest on Certificate of Deposits (CDs) compounded monthly. Mr. Mohammed aims to get the highest possible future value from the investment. Instructions: a. Analyse each of the aforementioned investment opportunities by estimating their future values. 15 marks b. Consider the following estimated risk for each option: Option Estimated risk Option 1 3% Option 2 2% Option 3 1% Option 4 1.5% Which option should be recommended? 10 marks
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