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Finance Questions Assignment Solution...................




Question;Outline;Youshould have;the correct answer and show your working or correct explanation to get one mark;(very brief or one line answers are not acceptable). An incorrect answer or an;answer without the working will be given zero. No part marks. For questions;where two or more answers are requested you must get all parts correct to get;the one mark. Include cash flow maps or;tables wherever possible. Avoid rounding error.;Read the questions carefully;Question;1;Now;that they have accumulated a deposit of 85,000 Jack and Jill take out a housing;loan to purchase a home. The house costs $655,000. It is to be repaid in equal;monthly instalments over a term of 20 years.;The interest rate quoted by the bank is an effective annual rate of 7.5%pa. Jack has misplaced the paperwork;showing the annual nominal rate (j12) with monthly compounding.;i.;How much is the monthly repayment?;ii.;How much do Jack and Jill owe the bank immediately before;making the 120th repayment?;iii.;After making the 160th repayment Jack and Jill;receive an amount of $50,000, which they use to reduce their loan. They wish to;keep the same term of the loan and reduce their repayments. How much is the new;repayment, if the interest rate remains the same?;(Answers to must be accurate to the nearest dollar);Question;2;Today;is Stanley?s 55th birthday. He plans to retire on his 65th birthday. He wants;to put aside the same sum of money every birthday (starting next birthday) up;to and including his 65th. He then wants;to be able to withdraw $8000 every birthday (starting with his 65th) up to and;including his 85th birthday. He believes that an interest rate of 7% pa is a;reasonable estimate of the opportunity cost of funds. How much does he need to;put away each birthday?;(Your answers should be accurate to the nearest dollar);Question;3;A perpetuity with the first annual cash flow paid at the;beginning of year 5 is equivalent to receiving $109,000 in 18 years? time.;Assume that the perpetuity and the lump sum are of equivalent risk and that j12;= 14.32% pa is the appropriate interest rate.;How much is the annual cash flow associated with the;perpetuity?;(Accurate to the nearest dollar);Question;4;In;exchange for a lump sum payment now, Polysuper offers an annual pension over;thirty years beginning with a payment of $30,000 at the end of the first year.;There are thirty payments in total and the payments will increase at an annual;rate of 3%pa. The appropriate opportunity cost of funds is j2 = 8%pa;what is the amount of lump sum needed to purchase the pension?;(Accurate to the nearest dollar);Question;5;a)A ninety day bank bill with 90 days to maturity has;a price of $99227.95. What is the effective annual yield implied by this price;and maturity? Be careful I am not asking for the annual nominal yield, which by;convention is normally quoted in financial markets. Face value is $100,000.;b)What would be the price of this bank bill if you;decide to sell it with 80 days left to maturity and the appropriate interest;rate was 4.21%pa effective?;c)Calculate the geometric average rate of return over;three years given the following annual rates, year 1 = 5.55%, year 2 = 6.75%;year 3 = 8.37%. (geometric nor arithmetic);(Rates as a percentage accurate to one basis point and prices;accurate to two decimal places);Question;6;Polycorp;Treasury a company in the land of Zanadu is holding a parcel of Zanadu;Government Bonds with a face value of $1,500,000. The bonds were issued seven years and three;months ago and still have two years and nine months to maturity. They pay a coupon rate of interest of 6.5%;pa, with interest being paid semi-annually. Currently the market yield quoted;for Zanadu bonds is 4.02% pa. The;convention in Zanadu financial markets is that the market yield and coupon rate;are quoted as annual nominal rates. What;is the current market value of the bonds?;(In dollars accurate to three decimal places);Question;7;Polycorp has a dividend of;$5.00 due in a year?s time and is expected to pay a dividend $5.50 at the end;of the second year. Its dividend is;expected to grow at 8% pa for the following year. Dividends are then expected;to grow at 4% pa for another two years, after which they are expected to grow;at 3.5%pa forever. Shareholders required return on equity is 10.85% pa. What is the current price (cum-dividend) of;Polycorp shares? Polycorp has just paid a dividend of $4.75.;(Accurate to the nearest cent);Question;8;Gamma Ltd is not expecting to pay;dividends for three years, at the end of year four, a dividend of $2.65 is;planned and dividends are expected to be constant forever after that. The;required rate of return for Gamma Ltd equity is j4 = 12.5% pa. What;is the expected price (cum-dividend) of Gamma Ltd?s shares at the beginning of;year nine? Explain your logic.;(Accurate to the nearest cent);Question 9;Mooncorp Insurance has quoted you;an annual premium to insure your car of $3100. You are offered a 15% discount;if you pay the lump sum immediately. They also offer an alternative payment;method. You can pay the account in full by;making 11 equal end-of-the month payments of $280, rather than the lump sum. The;first payment is at the end of the second month. What is the effective annual;opportunity cost of paying monthly?;You must provide one complete manual;calculation of the IRR to demonstrate that you understand the process. Failure;to follow this instruction will attract a mark of zero.;(Accurate to one basis point);Question 10;Calculate the return for each of these investments (capital;gain/loss plus dividend).;a) My;portfolio ends the year with a value of $12.72 million after paying dividends;at the end of the year to the value of $255,000. The value of the fund at the;beginning of the year was $12.13 million.;b) At the;same time the All Ordinaries Index ended the year at 5695 after starting at;5226.;c) A;share in BHP was selling for $23.45 at the beginning of the year and selling;for $27.42 at the end of the year after paying a dividend of $1.13.;(Your answers should be as a percentage accurate to one basis point)


Paper#47899 | Written in 18-Jul-2015

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