FIN 2102 Test 1

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FIN 2102 Test 1
Answer all the questions.
Note: You must show the workings to justify your answer. No marks is awarded if your
formula(s)/ working(s) is wrong but final answers is correct. Make sure your final
answer is underlined and round up to 2 decimal places! Scan and upload your answers
in PDF file only. You are given 30 minutes to upload your answers. Do upload your
answers 10 minutes before 3:30pm to avoid late submission. After 3:30pm, your
submission will be considered late submission. Marks will be deducted accordingly.
Please refer to the announcement for details.
Remember to write your name and ID in every pages of your answers.
Question 1
(a)
If you have $5,000 now and plan to invest in 1Malaysia Fund (1MF). The 1MF has 5
years to maturity and offers a return of 12% per year with monthly compounding. How
much would your investment accumulate to after 5 years?
[5 marks]
(b)
David Villa will receive $10,000 three years from now. He can earn 8% on this
investment, so the appropriate discount rate is 8 percent. What is the present value of this
future cash flow?
[5 marks]
(c)
How many years it will take for $2,500 to become $8,865 if it is deposited and earns 12%
per year compounded quarterly?
[5 marks]
(d)
If you receive a 9 percent $100,000 loan that requires you to make yearly payments for
20 years. How much is the yearly loan payments be?
[5 marks]
(e)
You come across two banks offering different compounding interest rates. Public Bank
offers 12 percent compounded semi-annually while Maybank offers 11.8 percent
compounded monthly. Which bank should you deposit in?
[5 marks]
(f)
Your father has just won a jackpot lottery. He is given the option of receiving a total of
$2.5 million now or he can elect to be paid $200,000 at the end of each of the next 20
years. If your father can earn 5% annually on his investments, from finance point of view
which option should he take?
[5 marks]
Question 2
Year
Project A
Project B
1
15,000
20,000
2
25,000
20,000
3
25,000
20,000
4
30,000
-20,000
5
30,000
20,000
6
-30,000
50,000
Assuming a 10 percent discount rate, find the present value of each project.
Which project should you choose?
[10 marks]
Question 3
You plan to invest in a bond that pays $80 coupon interest every year, with a $1,000 par
value. It matures in 20 years and the market is selling this bond at $980. Your required
rate of return is 13%
a. Compute the bond’s expected rate of return. [5 marks]
b. Determine the intrinsic value of the bond to you. [5 marks]
c. Should you invest in this bond? Why? [2 marks]
Question 4
Explain the THREE (3) key decisions of a financial manager in a large corporation and
elaborate how these key decisions can lead to shareholders’ wealth being maximized.
Include an example for each key decisions.
Please be reminded to answer as per your understanding in class. Any answers from
google will be given 0 marks.
[15 marks]

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