BWFF 2033-FINANCIAL MANAGEMENT-A141

GROUP ASSIGNMENT 2 (5%)

This assignment is based on Chapter 5 (Time Value of Money) and Chapter 6 (Risk and
Return) from your course syllabus. There are 13 questions as outlined below. Each group
is required to address all of the question. You also need to show all the workings, where
appropriate. On the cover page, write names and matric numbers of all the group
members. The assignment should be typed, using 12 fonts Times New Romans. Please
remind that your assignment is due on 20 NOVEMBER 2014 (THURSDAY). Please
submit the answers to the LECTURER handling your TUTORIAL CLASS.

1. You are planning to make monthly deposits of RM300 into a retirement account that pays
10 percent interest compounded monthly. If your deposit will be make one month from
now, how large will your retirement account be in 30 years?

2. Beginning three month from now, you want to be able to withdraw RM2,300 each quarter
from your bank account to cover college expenses over the next four years. If the account
pays 0.65 percent interest per quarter, how much do you need to have in your bank
account today to meet your expense needs over the next four years?

3. A life insurance company is trying to sell an investment policy that will pay you and your
heirs RM25,000 per year forever. If the required return on this investment is 7.2 percent,
how much will you pay for this policy?

4. A pawn shop charges an interest rate of 30 percent per month on loan to customers. Like
all lenders a pawn shop must report an APR to consumers. What rate should the shop
report? What is the effective annual rate?

5. You own the following portfolio of stocks. What are the portfolio weights of the following
stocks?

Number Price
Stock of Shares per Share
A 100 RM 22
B 600 RM 17
C 400 RM 46
D 200 RM 38

6. You have a portfolio consisting solely of stock A and stock B. The portfolio has an
expected return of 8.7 percent. Stock A has an expected return of 11.4 percent while stock
B is expected to return 6.4 percent. What is the portfolio weight of stock A?

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7. What is the expected return on a portfolio which is invested 25 percent in stock A, 55
percent in stock B, and the remainder in stock C?

8. What is the standard deviation of the returns on a stock given the following information?

9. You are comparing stock A to stock B. Given the following information, what is the
difference in the expected returns of these two securities?

10. The market has an expected rate of return of 10.7 percent. The long-term government bond
is expected to yield 5.8 percent and the U.S. Treasury bill is expected to yield 3.9 percent.
The inflation rate is 3.6 percent. What is the market risk premium?

11. The risk-free rate of return is 3.9 percent and the market risk premium is 6.2 percent. What
is the expected rate of return on a stock with a beta of 1.21?

12. The common stock of Jensen Shipping has an expected return of 16.3 percent. The return on
the market is 10.8 percent and the risk-free rate of return is 3.8 percent. What is the beta of
this stock?

13. The expected return on JK stock is 15.78 percent while the expected return on the market is
11.34 percent. The stock's beta is 1.62. What is the risk-free rate of return?