Question

A) A client just deposited ¢7,000,000 in one of your investment funds which is currently earning 10% return. The bank has advised the client to deposit an additional ¢4,000,000 at the end of each of the next three years. The client would like to know how much the total amount in this investment will be in three years’ time. Kassim has just been offered a job at ¢600,000 a year. He anticipates his salary will increase by 6% annually until his retirement in 40 years.

B ) Kassim’s required return on any investment is 9%. What is the present value of Kassim’s lifetime salary?

c) This morning, TL Trucking invested $90,000 to help fund a company expansion project planned for 4 years from now. How much additional money will the firm have 4 years from now if it can earn 6 percent rather than 5 percent on its savings?

d) Prepare an amortization schedule for a five year loan of $36,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loan?

e) One of your colleagues is trying to convince Mercer to invest in a special fund your firm has just started. Mercer wants to earn an effective annual rate of 10% and is looking at an investment that compounds on a quarterly basis. What APR must the investment pay so as to convince Mercer to put her money into the fund?

Answer 1

Part A - We will be using financial calculator to compute the FV of the payments

N (no. of years) = 3 years, I/Y (Interest rate) = 10%, PV (Present value) = 7,000,000, PMT (Yearly payment) = 4,000,000

we need to find FV. So, the amount will be 22,557,000 by using financial calculator

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