July 2020 BBF20103 Introduction To Financial Management Assignment 2
July 2020 BBF20103 Introduction To Financial Management Assignment 2
JULY 2020
ASSIGNMENT 2
Instructions:
1. Assignment 2 contains ONE (1) section and you are required to answer ALL
questions.
2. The assignment should be typed using ARIAL, font size 12 and 1.5 spacing.
3. The deadline for the submission of Assignment 2 is 23 Oct 2020, 11:59 pm. A
softcopy should be submitted via Online Assignment Submission System.
4. Students are highly encouraged to passage their Assignment to the Turnitin system
before submission, to encourage honest academic writing and it is not mandatory
except for Project courses.
5. Students will be required to use the “TMA Declaration form” (T-DF) as the cover page
of Assignment’s submission.
Page 1 of 5
BBF201/03 INTRODUCTION TO FINANCIAL MANAGEMENT
JULY 2020
ASSIGNMENT 2
a) Find the future value of RM2,000 received today and deposited at 7.00 percent for
four years.
(3 marks)
b) Your current income is RM70,000 per year, and you would like to maintain your
current standard of living (i.e., your purchasing power) when you retire. If you
expect to retire in 25 years and expect inflation to average 2.50% over the next 25
years, compute the amount of annual income will you need to live at the same
comfort level in 25 years.
(3 marks)
c) Find the present value of a RM120,000 perpetuity at a 5.00 percent discount rate.
(3 marks)
d) Compute the future value of a RM2,000 annuity due deposited at 7.50 percent
compounded annually for each of the next 12 years.
(6 marks)
e) Find the future value of an ordinary annuity of RM1,500 each year for 12 years,
deposited at 4.50 percent.
(5 marks)
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BBF201/03 INTRODUCTION TO FINANCIAL MANAGEMENT
JULY 2020
ASSIGNMENT 2
f) Estimate how much is the present value of an ordinary annuity of RM1,550 each
year for four years, assuming an opportunity cost of 3.50 percent.
(5 marks)
g) You have been awarded a bonus for your outstanding work. Your employer offers
you a choice of a lump-sum of RM6,500 today, or an annuity of RM1,700 a year
for the next five years. Decide which option you should choose if your opportunity
cost is 8.00 percent.
(6 marks)
h) Solve how many years do you need to accumulate RM8,500 if you save RM6,000
now at 5.00 percent in saving account at ANZ Bank.
(4 marks)
Jason is considering investing in three different stocks or creating three distinct two stock
portfolios. Jason considers himself to be a rather conservative investor. He is able to
obtain forecasted returns for the three securities for the years 2015 through 2019. The
data are given in the following table.
Historical Return
Year Stock A Stock B Stock C
2015 10% 10% 12%
2016 13% 11% 14%
2017 15% 8% 10%
2018 14% 12% 11%
2019 16% 10% 9%
Weight 50% 50% 50%
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BBF201/03 INTRODUCTION TO FINANCIAL MANAGEMENT
JULY 2020
ASSIGNMENT 2
a) Find the expected return for each individual stock. Show all your workings.
(10 marks)
b) Calculate the standard deviation for each individual stock. Show all your workings.
(18 marks)
c) Compute the expected returns for portfolios AB, AC, and BC. Show all your
workings.
(7 marks)
The MISC is involved in searching for locations in which to drill for oil. The firm’s current
project requires an initial investment of RM15 million and has an estimated life of 8 years.
The firm’s current cost of capital is 10.50%. The expected future cash inflows for the
project are as shown in the following table.
Year Cash Flow of Project (RM)
1 600,000.00
2 1,000,000.00
3 2,500,000.00
4 3,000,000.00
5 4,500,000.00
6 5,000,000.00
7 5,500,000.00
8 8,500,000.00
Page 4 of 5
BBF201/03 INTRODUCTION TO FINANCIAL MANAGEMENT
JULY 2020
ASSIGNMENT 2
a) Find the Payback Period for the project. If the firm usually accepts projects that
have payback periods between 1 and 7 years, justify whether this project is
acceptable.
(8 marks)
b) Calculate the project’s Net Present Value (NPV). Explain whether the project is
acceptable under the NPV technique.
(10 marks)
c) Computer the project’s Profitability Index. Describe whether the Profitability Index
is the most significant measure in determining the capital investment decision in a
company.
(4 marks)
d) Calculate the project’s Internal Rate of Return (IRR). Decide whether the project
acceptable under the IRR technique.
(8 marks)
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