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Full name and IC No: TENG KUN SANG 001203-14-0703 Date:

Assignment (Asgmt) Declaration Form

Semester/Year 2/2021

Student’s Name TENG KUN SANG

Student’s ID No: 031210073

Course Code BBF201/03

Course Title INTRODUCTION TO FINANCIAL MANAGEMENT

Class Code 3-IFN3

Assignment No: Assignment 2

No. of pages of this

Assignment (including
this page)

Tutor SASIDHARAN A/L RAMAN NAIR

Course Coordinator MS TENGKU NUR SHAHRUL HIZAM BINTI TENKU IZHAM

T-DF Assignment Declaration Form (1/2020 version #003)

Question 1
 (a)

Option A:
Interest = RM 15,000 × 8% × 2 years
Interest = RM 2400
The total return = RM 15,000 + RM 2,400
= RM 17,400

Option B:
Compounded formula
FV = PV (1+i) n
Compounded Semi-annually formula
FV = PV (1+i/m) n × m

FV = RM 15,000(1+0.06/2) 2 × 2
FV = RM 15,000(1+0.03) 4
FV = RM 15,000(1.03) 4
FV = RM 16,882.63

Option C:
Compounded formula
FV = PV (1+i) n
Compounded fortnightly means that every 2 weeks.
365 Days / 14 times = 26.07142857 times
FV = PV (1+i/m) n × m

FV = RM 15,000(1+0.03/26.07142857) 2 × 26.07142857
FV = RM 15,000(1+0.03/26.07142857) 52.14285714
FV = RM 15,000(1.001150685) 52.14285714
FV = RM 15,927.00

Hence, I will advice Ridzuan make an investment on Option A, this is because Option A invest in a fund
that pays 8% simple interest for 2 years and it’s the highest return compare to option b and option c. Follow the
calculation above, Option A future value is RM 17,400 better than option b and option c.
(b)
Saving accounts = RM 10,000
 Interest rate = 8%
Time n = 10 years

FVn = PMT [(1+i) n -1] / i

FV10 = RM 10,000 [(1+0.08)10 -1] / 0.08

FV10 = RM 10,000 [(1.08)10 – 1] / 0.08

FV10 = RM 10,000 (1.158924997 / 0.08)

FV10 = RM 10,000 × 14.48656247

FV10 = RM 144,865.62

Accumulate sum = RM 144,865.62

(c)
Motor vehicle costs RM 20,000
10% as deposit = RM 20,000 x 0.1
= RM 2,000
Balance to be paid = RM 20,000 - RM 2,000
= RM 18,000
(i)
Compound interest formula
FV = PV(1+r) n
FV = RM 18,000(1+0.02)6
FV = RM 18,000(1.02)6
FV = RM 18,000 x 1.12162
FV = RM 20,270.92

The total amount of interest expense if the compound interest rate is 2% per month and total RM 20,270.92
need to pay after 6 months.

(ii)
Loan amortization schedule showed below
Month Beginning value Interest 2% Ending value
1 RM 18,000.00 RM 360.00 RM 18,360.00
2 RM 18,360.00 RM 367.20 RM 18,727.20
3 RM 18,727.20 RM 374.54 RM 19,101.74
4 RM 19,101.74 RM 382.03 RM 19,483.77
5 RM 19,483.77 RM 389.68 RM 19,873.45
6 RM 19,873.45 RM 397.47 RM 20,270.92

The total amount be paid for the vehicle is RM 2,000 deposit + RM 20,270.92 including interest after 6 months
= RM 22,270.92.

Question 3
(i)
Expected return for each of the stock.
Stock A
Return = 10% + 5% + 6% + 8% + 12% + 15%
= 56%
Average return = 56 % / 6 years
= 9.3333%
Stock B
Return = 8% + 4% + 4.80% + 6.4% + 9.6% + 12%
= 44.8%
Average return = 44.8% / 6 years
= 7.4667%
Stock C
Return = 5% + 10% + 12% + 10% + 6% + 6%
= 49%
Average return = 49% / 6 years
= 8.1667%

(ii)
Formula for sample variance

Stock A
Variance (V2) = (10 - 9.3333)2 + (5 - 9.3333)2 + (6 – 9.3333)2 + (8 – 9.3333)2 + (12 – 9.3333)2 + (15 – 9.3333)2
6-1
Variance (V2) = (0.6667)2 + (-4.3333)2 + (-3.3333)2 + (-1.3333)2 + (2.6667)2 + (5.6667)2
5
Variance (V2) = 0.4445 + 18.7775 + 11.1109 + 1.7777 + 7.1113 + 32.1115
5
Variance (V2) =71.3334
5
Variance (V2) = 14.2667
Standard deviation = √ (variance)
Standard deviation =√ 14.2667
Standard deviation = 3.7771

Stock B
Variance (V2)
= (8 – 7.4667)2 + (4 – 7.4667)2 + (4.80 – 7.4667)2 + (6.4 – 7.4667)2 + (9.6 – 7.4667)2 + (12 – 7.4667)2
6–1
= (0.5333)2 + (-3.4667)2 + (-2.6667)2 + (-1.0667)2 + (2.1333)2 + (4.5333)2
5
= 0.2844 + 12.0180 + 7.1113 + 1.1378 + 4.5510 + 20.5508
5
= 45.6533
5
Variance (V2) = 9.1307
Standard deviation = √ (variance)
Standard deviation = √ 9.1307
Standard deviation = 3.0217

Stock C

Variance (V2)
= (5 – 8.1667)2 + (10 – 8.1667)2 + (12 – 8.1667)2 + (10 – 8.1667)2 + (6 – 8.1667)2 + (6 – 8.1667)2
6–1
= (-3.1667)2 + (1.8333)2 + (3.8333)2 + (1.8333)2 + (-2.1667)2 + (-2.1667)2
5
= 10.0280 + 3.3610 + 14.6942 + 3.3610 + 4.6946 + 4.6946
5
= 40.8334
5
Variance (V2) = 8.1667
Standard deviation = √ (variance)
Standard deviation = √ 8.1667
Standard deviation = 2.8577
(iii)

We can minimize the risk by investing in a diversified portfolio because in this portfolio unsystematic risk will
get eliminated and only systematic risk will remain. In addition, appropriate asset allocation refers to the way
you weight the investments in your portfolio to try to achieve a specific goal-this may be the most important
factor in the success of your portfolio.

Question 4

(a)
(b)
A partnership is an enterprise jointly owned by two or more persons. Besides, sole proprietorship is owned and
managed by a single person called the owner. A corporation is a legal entity separate from the owners of the
business. But this three form of business has several advantages and disadvantages.

Partnership / Proprietorship
Advantages Disadvantages
-Cost less to establish -Lack of continuity
Corporations cost more to set up and run than a sole If one of the partners dies, retires or withdraws from the business,
proprietorship or partnership. For example, there are the initial the general partnership will be dissolved.
formation fees
-Have minimal formalities -Conflicts or personality
Sole proprietorship or partnerships can be opened and operated Conflicts may stem from differences of opinion or unequal
without any formal organization or operating procedures-even efforts to the business.
without a written agreement.
-Not liable for unemployment insurance -Unlimited liability of the business
Sole proprietors or partners do not need to pay unemployment If the company assumes a large amount of debt and is unable to
insurance tax for their wages. repay it, the partner will face the risk of losing personal assets to
cover the loss caused by the company

Corporation
Advantages Disadvantages
-Stockholders have limited liability -Closely regulated
The shareholder’s liability is limited to the investment amount. Need to comply with legal standards to avoid penalties
-Easier to raise capital -Double taxation
It is easier to attract capital by selling stocks and bonds. A Corporation tax and dividend tax are two taxes involved
company can have an unlimited number of investors.
-Separate legal entity -Diluted ownership

I would recommend that adopt the business structure of a corporation to conduct business. To understand the
advantage of the corporation, let’s take the simple example will be. Suppose that I have negotiated a $100,000
bank loan on my business plan. However, the business unfortunately fails and results in massive losses and
does not have enough money to pay back the bank loan. Therefore, if the bank goes to court, the court can force
us to sell the company’s assets and repay the loan but the court cannot require the owner to pay the company’s
losses and debts personally.
(c)

(i) Systematic risk. This is because the result of the presidential election is global news that affects the entire
economy.

(ii) Unsystematic risk. Harlie Davidson is a person, and going to jail will not affect the economy. It will only
affect specific companies.

(iii) Systematic risk. The rise in global oil prices is a decision that will affect the world economy. Therefore, it
is considered a systemic risk.

(iv) Unsystematic risk. If a consumer products company loses the lawsuit, it will only affect the company, not
the economy. Hence, it is considered non-systematic risk.

(v) Systematic risk. A decision by the supreme court regarding the employees, will affect every company of
the country and not just a single person or company. So, the risk is classified as systematic risk.