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a) Luqman, a football player is negotiating with BBB Club regarding his contract. His opportunity cost is 5%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contracts are as follows: Year Contract 1 Contract 2 RM2,500,000 RM2,000,000 RM2,500,000 RM2,500,000 RM2,500,000 RM3,000,000 RM2,500,000 RM3,500,000 Contract 3 RM4,000,000 RM2,000,000 RM2,000,000 RM2,000,000 As adviser, which contract would you recommend that he accept? (10 marks) b) Mr Hakiemi needs RM80,000 to buy her dream car. In her search for the best (low cost) loan, she has gathered the following information from three local banks. Which bank would you recommend Mr Hakeimi borrow from? Bank Annual Payment Term (years) RM33,307.92 3 B RM25,237.66 4 RM21,645.62 5 (8 marks) c) Assume that Sephia will saving RM5,000 a year in Years 1 through 5, RM10,000 a year in Years 6 through 8, and RM20,000 in Year 9 and 10 and, with all cash flows to be received at the end of the year. If she requires a 12 percent rate of return, what is the future value of these cash flows? (7 marks) 3 d) Bunyamin plan to buy a terrace house and need to borrow RM300,000 from Bank A. Interest rate offered by Bank A is 6% nominal rate and his term loan is about 30 years. His instalment will be monthly instalment. How much interest does he need to pay in 4th payment? Total principal paid from Period 1 till 6? (10 marks) e) If you assume market interest rates are expected to increase over the term of the loan, would you prefer loan with a fixed rate for the life of the loan or rather a loan with a variable rate that changes in response to market interest rates? (Assume that both loans start with the same interest rate.) Would your answer change if market interest rates are expected to decrease over the term of the loan

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