Reference no: EM132852631
Problem - Carlos Reyes, a 30-year old employee and earning P400,000 per annum, has accumulated savings of P180,000. His family living costs amount to P20,000 a month of P240,000 per annum so that he can have P160,000 as additional savings by the end of the year. In as much as he shall have extra cash of P340,000 by then, he has thought of the following options:
1st: Add the P160,000 to his savings account.
2nd: Leave P30,000 in his savings account and open a time deposit account for the balance of P310,000 which can be rolled over every month.
3rd: Leave P20,000 in his savings account, transfer P100,000 to a premium savings account and the remaining P220,000 to trust investment with a bank.
4th: Leave P120,000 in his savings account, transfer P150,000 to a bank's trust investment and invest the remainder of P70,000 in stocks.
5th: Leave P50,000 in his savings account, transfer P100,000 to a special savings deposit, invest P150,000 in a bank's trust investment, and invest the balance of P40,000 in stocks.
6th: Leave P50,000 in his savings account, transfer P100,000 to a special savings deposit, invest P150,000 in a bank's trust investment, invest P25,000 in stocks and use the balance of P15,000 for an educational plan for his children.
7th: Invest P250,000 in common trust funds and P90,000 in stocks.
Required -
1. What would be your two best investment options? Explain.
2. What investment option would you take the least? Explain.
3. Assuming that Mr. Reyes chooses the 5th alternative and invests P40,000 in stocks at the beginning of the following year, compute for the holding period return if at the end of the following year the price of the stocks is P44,500 and dividend of P2,700 was received by Mr. Reyes during the year.