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HI5002 Finance for Business

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HI5002 Finance for Business

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Questions:

1)    Five years ago Peter had started his saving for his children’s higher education by putting a lump sum of $25,000 into an investment instrument on the securities market. The investment has been paying a rate of returns of 12.3% per year, compounding monthly.
 
Required:
a.    Calculate how much money has Peter accumulated from his investment now? (3 marks)
b.    If Peter’s initial investment was $30,000 and he had obtained the same investment outcome after five years, how much should have been the actual rate of return, assuming compounding annually for his investment ? (4 marks)
2)    If Peter would like to have totally $60,000 for his children’s higher education and moves all the saving accumulated from current investment after five year to another instrument that pays the interest rate of 13.5% per year, compounding annually. How long will it take for Peter to reach his target of $60,000 ? (4 marks)
Jenny decided to do the following things after completion of her finance degree at Holmes Institute:
(i)    Putting an exact amount of money in to Smart Investment Fund at the beginning of each year to have a saving of $800,000 for her retirement in 25 years from now. The average rate of return provided by this investment fund is 11% per year. 
(ii)     Having solar panels installed on her house roof for saving monthly electricity expense.
(iii)    Saving extra monthly income in to a bank account that allows flexibility when she needs cash and at the same time provides interest income for any existing balance.
 
Required:
a.    How much money should Jenny put into her investment fund account at the begining of each year to reach her saving target in 25 years from now? (3 marks)
b.    The solar panel provider offers her a payment package of $100/month at the end of each month for 3 years. Given the interest rate is 3.5%, calculate the present value of the payment package? (2 marks)
c.    Jenny is considering offers from two banks for her saving account. Bank A offers the interest rate of 2.54% per year, compounding semi-annualy. Bank B offers the interest rate of 2.53% per year, compounding daily. Help Jenny choose the better Bank by calculating Effective Annual Interest Rate (EAR). (2 marks).

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