QUESTION 1 (25 MARKS)
a) Najwa took a RM30,000 car loan from Mudah Bank. The bank charged Najwa 2.5%interest and requires her to pay at the end of each year for 4 years. Calculate theyearly repayment amount and complete the following loan amortization schedule.
Year | Beginning Value |
Repayment amount |
Interest paid |
Principal paid |
Ending Value |
1 | |||||
2 | |||||
3 | |||||
4 |
(10 marks)
- b) SejatiSdn. Bhd. had just obtained a loan from Jaguh Bank. The bank had agreed to lend SejatiSdn. Bhd. RM250,000. Muthu will have to pay monthly installments to repay the loan, at an interest of 5.0% per annum, compounding monthly, for 10 years.
i) Find the amount of monthly installment which has to be paid by SejatiSdn. Bhd. (4 marks)
ii) Compute the total interest that SejatiSdn. Bhd. will have to pay if it continues the loan until the agreed settlement term (i.e. 10 years). (4 marks)
iii) If SejatiSdn. Bhd. decides to settle the loan completely after 6 years, find the amount of interest which it will be able to save. (7 marks)
QUESTION 2 (25 MARKS)
a) With a 7% discount rate, determine the value on 1 January 2023 of the following
cash flows:
Date Cash Received | Amount of Cash (RM) |
1 January 2024 | 14,000 |
1 January 2025 | 20,000 |
1 January 2026 | 30,000 |
1 January 2027 | 43,000 |
1 January 2028 | 57,000 |
(6 marks)
b) Ravindran has been depositing money at the end of each year into an account drawing 6.5% compound interest per annum. Calculate the balance in the account at the end of year four if he deposited the following amounts:
Year | End of Year Deposit |
1 | RM350 |
2 | RM500 |
3 | RM725 |
4 | RM400 |
(5 marks)
c) You invest RM2,500 at a variable rate of interest. Initially, the rate is 5% compounded annually for the first year, and the rate increases half percent annually (0.5%) for five years. Compute how much will you have in the account after five years (3 marks)
d) Mr Chong is planning to start saving for his son’s college education fund. When thetime comes, he wishes to accumulate RM45,000 at the end of 17 years. Assumingthat his savings account will pay 6.5% compounded annually, calculate how muchwould he will have to deposit if:
i) he wants to deposit an equal amount at the end of each year.
ii) he wants to deposit one lump sum today. (8 marks)
e) An investment will pay RM500 in three years, RM700 in five years, and RM1,000 innine years. If the opportunity rate is 6%, calculate the present value of this (3 marks)
QUESTION 3 (25 MARKS)
Stock | Percentage Return (%) | |||||
Year | 1 | 2 | 3 | 4 | 5 | 6 |
A | 10 | 5 | 6 | 8 | 12 | 15 |
B | 8 | 4 | 4.8 | 6.4 | 9.6 | 12 |
C | 5 | 10 | 12 | 10 | 6 | 6 |
- Find the expected return for each of the stock. (6 marks)
- Compute the variance and standard deviation for stock A, B and C. Show your workings (12 marks)
- i) Identify which pair of the combinations A, B and C shows a positive correlation. (2 marks)
- ii) Explain which pair shows a negative correlation. (2 marks)
iii) Justify how can the risk of the above combination of stocks be minimized. (3 marks)
QUESTION 4 (25 MARKS)
Dinar Berhadis located in Bayan Lepas where a market is held regularly. It decided tobuy a bus to take passengers to and from the market. It is estimated that 200 tickets couldbe sold a day for RM4 each.
Dinar Berhad intended to run the bus for three years. It had the option of buying a newerbus, bus A, or an older bus, bus B. Dinar Berhad knew that the older bus would be lessreliable and there would be more days each year when the bus could not run because ofbreakdowns and maintenance. It would also require more money to be spent on repairs.The following estimated information was available.
Bus A | Bus B | |
Initial purchase price | RM86,000 | RM45,000 |
Sale proceeds at the end of year 3 | RM28,000 | Nil |
Days lost to breakdowns and maintenance | ||
Year 1 | 5 | 12 |
Year 2 | 9 | 15 |
Year 3 | 16 | 17 |
Costs of repairs and maintenance | ||
Year 1 | RM7,000 | RM9,000 |
Year 2 | RM8,000 | RM14,500 |
Year 3 | RM11,000 | RM17,000 |
Other running costs were expected to the same for both buses. Dinar Berhad uses a cost of capital of 10%.
a) Calculate the difference in NPV between purchasing bus A and bus B. (10 marks)
- b) Assuming that the NPV for bus A is RM18,900, calculate the NPV of purchasing bus B. (3 marks)
Additional information
Assume that the Accounting Rate of Return (ARR) of purchasing bus A was calculatedas 24.56%. The total net cash flows of year 1 to 3 inclusive for bus B amounted toRM74,300.
c) Calculate the ARR of purchasing bus B. (4 marks)
d) Advise Dinar Berhad which bus it should buy. Justify your answer. (6 marks)
e) State one method of investment appraisal (other than NPV and ARR) which a business could use. (2 marks)
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