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Question 2. You have approached Commonwealth Bank for a loan to buy a house. The bank...

Question 2. You have approached Commonwealth Bank for a loan to buy a house. The bank offers you a $500 000 loan, repayable in equal monthly instalments at the end of each month for the next 30 years. Required: a. If the interest rate on the loan is 4.5% per annum, compounded monthly, what is your monthly repayment (to the nearest dollar)? b. What is your weekly payment if you wish to pay weekly instalments and the interest rate is compounding weekly? 1

Question 3. Harvey Norman’s Furniture has approved the maximum payment credit for the furniture you bought of $150 a month for 60 months. The annual interest rate 12%. a. How much furniture can you afford to purchase using the credit offered by the store? b. How much furniture can you afford to purchase using the credit offered by the store of the rate is 15%? Question 5. Fred is planning to invest the following amounts at 5% interest pa. Required: a. Draw out the timeline of this investment flow b. How much money will he have saved at the end of year 3? c. How much money will he have saved at the end of year 3 if the interest rate 5% is compounding semi-annually? End of year Amount 1 $6000 2 $7500 3 $1050 2

Question 6. Your company just signed a sales contract with a new customer that will earn your company the cash flow as follow: Required: a. Draw out the time line of this cash flow? b. What is this contract worth as of the end of year 4 if the firm earns 5% on its savings? c. What is this contract worth today if the rate of return 6% applies?

Homework Answers

Answer #1

2) Here we use pmt formulae in excel to find the payment monthly or weekly

=pmt(rate,nper,pv,fv,type)

a)4.5% monthly

Rate= interest rate based on compounding frequency=4.5%/12(since monthly compounding)

Nper=period=30*12(since it is for 30 years and monthly compounding)

Pv=500000

Fv=0

Type=0

=pmt(4.5%/12,30*12,500000,0,0)=2533

b)4.5% weekly

Rate= interest rate based on compounding frequency=4.5%/52(since weekly compounding)

Nper=period=30*52(since it is for 30 years and weekly compounding)

Pv=500000

Fv=0

Type=0

=pmt(4.5%/52,30*52,500000,0,0)=584

3) We can find using pv formulae in excel

=pv(rate,nper,pmt,fv,type)

a)rate is 12%

=pv(12%/12,60,-150,0,0)=6743.26

b)rate is 15%

=pv(15%/12,60,-150,0,0)=6305.19

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