Name: WANG JIAXUAN

Matric no. ：256566

QUESTION 1 (5 marks)

a. Distinguish between risk and uncertainty. (2 marks)

Risk: Effect of uncertainty on objectives. Risk is a measure for probability and
consequence of uncertain future events (undesirable outcome). E.g Loss due to fire,
flood (physical loss) Illness, death (human loss) Financial setback , hazard (legal
liability loss).
Uncertainty: uncertainty about the event
b. List the needs for risk analysis for business organization. (3 marks)
⚫ Based on good science
⚫ Consider social value through risk management task when making decision
under uncertainty
⚫ Address uncertainty explicitly when decisions are made without complete
information
⚫ Seek the right information from various source
⚫ Involved in a continuously improving decisions

QUESTION 2 (5 marks)

Describe two (2) sources of risk in business organization.

⚫ Environmental risks, such as natural disasters

⚫ Excessive/Unreasonable incentives

QUESTION 3 (5 marks)

Explain the phrase “Time Element Loss (TEL)”. Provide one example and
describe how it would specifically impact the TEL.

TEL refers to exposure to a loss resulting from the inability to put damaged property to
its normal use. Revenue is lost when normal operations are interrupted by natural
disasters. In addition, if a commercial building needs to be repaired due to property
damage, the company may incur additional costs.

QUESTION 4 (5 marks)

a. Identify three elements that are common features of financial assets.(3 marks)
⚫ Legal instrument that conveys rights to the holder of the contract
 ⚫ Securities
⚫ Traded and untraded financial assets（Securitization & Liquid asset）

b. Among the three assessments of financial assets, which is the most accurate?
Explain your reasoning. (2 marks)
I think monte-Carlo Simulation is the most accurate. First, the Historical Method
looks only at Historical data and assumes that history repeats itself. This measure
is how things are today compared to history. So there's a lot of uncertainty in this
assessment. Secondly, The Variance co-variance Method assumes that stock returns
are normally distributed. Compared with Monte-Carlo Simulation, this evaluation
method has a wider range. It's not a very accurate assessment. Finally, Monte-Carlo
Simulation is to build a future stock price return model. Its assessment will be more
accurate. So I think monte-Carlo Simulation is the most accurate.

QUESTION 5 (10 marks)

Susan is 30-year-old accountant. She makes RM60,000 per year from her job.
Each year she requires RM48,000.00 to support her parents. If she wants to
replace the income for the family until her retirement age at 55, at 3% discount
rate p.a. calculate her human life value. Round your answer to the nearest RM.
Show your calculations.

N= 15 years

i is 3%

PMT= RM48,000

HLV = PV Annuity = PMT (PVIFA i,n) = RM48000 (11.938) = RM573,021

Thus, $573,021 is needed today to replace Susan’s income needs in the next 15 years
in case of her sudden demise