Investment Options and Bond Investment

INDIVIDUAL ASSIGNMENT
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Case Study one: Investment Options
Fixed Deposit Account
In this option, Diane is considering three options to make the fixed deposit and has to
select the one bank from the given list of three banks. So, in order to earn more it is required to
select bank that provide highest interest rate on the fixed deposit account and also provide best in
class features on the fixed deposit account.
Selection of bank:
 Maybank (Islamic Fixed Deposit – i): On term deposit of 36 to 47 months bank provides
interest of 3.40% p.a. and also provides free personal accident (PATC) plus medical
expenses. Interest rate on fixed deposit on less than 36 months but more than11 months is
3.35% (Maybank, 2019).
 CIMB Bank (Unfixed Deposit): Under this option bank provides the option to the
company to make deposit in the account and allows withdrawal of minimum of RM 1000
(and multiples of RM1000) at their will before maturity. Under this option, customer still
earns interest on the remaining amount till maturity. This option is for those who want to
have money at any point of time during deposit due to any emergency situation or any
other needs (CIMB Bank, 2019).
 Bank Simpanan Nasional, BSN (Term Deposit): It is no risk fixed deposit account which
provides 3.35% interest p.a. on deposit made for 36 months, 3.35 for 24 months and 3.45
for 12 months. No other features and benefits are provides by this term deposit scheme
(BSN Bank, 2019).
It is advised to make investment in Maybank (Islamic Fixed Deposit – i) as it offers
higher rate of return on fixed deposit as compared to other two options and also holds the money
for till maturity so that investors received lump sum amount at the end. This option will provide
more return on deposit as compared to other two given options. So the interest rate per annum
will be 3.40% for 36 months and 3.35% for 12 months and 24 months.
Investment evaluation:
It is assumed that Diane has only RM 12000 to make the investment and she has three
options to choose from. All three options have been evaluated in the below table in order to
recommend best options available.
Investment
Option Year Amount
Deposit
Holding
Time
Interest
Rate
Principl
e Interest Amount
Amount in RM
Option 1 Year 1 3 years 3.40% 12000 1224 13224
Maturity (Option
1) 12000 1224 13224
2

Option 2 Year 1 12000 1 year 3.35% 12000 402 12402
Year 2 12000 1 year 3.35% 12000 402 12402
Year 3 12000 1 year 3.35% 12000 402 12402
Maturity (Option
2) 12000 1206 13206
Option 3 Year 1 3000 3 years 3.40% 3000 306 3306
Year 2 4000 2 years 3.35% 4000 268 4268
Year 3 5000 1 year 3.35% 5000 167.5 5167.5
Maturity (Option
3) 12000 741.5 12741.5
(Damodaran, 2011)
Recommendation: On the basis of evaluation, it is highly recommended to Diane to choose
option 1 for the investment purpose where investment of RM12000 is made in year 1 for 3 years.
Bond Investment
Part A: Calculation of current bond prices
Formula:
(Davies and Crawford, 2011)
Company Biotech
Industries
Beta
Corporation
Coupon rate per annum 8% 10%
Interest payment Semi-Annually Annually
Maturity (n) 5 10
Face value $
1,000.00
$
1,000.00
Yield to maturity ( r ) 10% 8%
No. of coupon payment periods per year
(m) 2 1
Number of payment periods (m x n) 10 10
Periodic rate (r/m) 5.00% 8.00%
Coupon Payment $
40.00
$
100.00
Price of Bond $
922.78
$
1,134.20
Price at which Collins is selling $
1,050.00
$
850.00
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