Question

Please give me solution and pick from multiple choice  

Luke borrows $750,000 from ANZ to set up a medical practice. He agrees to pay a fixed interest rate of 12% per annum compounding monthly and to repay by equal monthly instalments over 25 years. Calculate the monthly repayment and the remaining loan after making 36 monthly repayments.

	a.	The monthly repayment is $7,899.18 and the outstanding is $732,804.53 after making 36 monthly repayments.
	b.	The monthly repayment is $107,103.02 and the outstanding is $732,804.53 after making 36 monthly repayments.
	c.	The monthly repayment is $107,103.02 and the outstanding is $776,461.59 after making 36 monthly repayments.
	d.	The monthly repayment is $7,899.18 and the outstanding is $776,461.59 after making 36 monthly repayments.

Kathy’s rich uncle promises her an allowance of $10,000 per month for 6 months, with the first allowance to be made 1 month from today. If the interest rate is 0.5% per month, what is the present value of the promised allowance?

	a.	The present value of investment is $49,258.66.
	b.	The present value of investment is $58,963.84.
	c.	The present value of investment is $4,785.69.
	d.	The present value of investment is $60,000.

The size, timing and risk of the cash flow from a potential investment are of equal importance and each must be taken into account when the investment us being evaluated.

True

False

Answer 1

1: Option a is right.

Q1	Monthly payment	$7,899.18
	Remaining loan	$732,804.53

2: Option b

Q2

Present value

$58,963.84

3: True

We need to compute the present value before deciding upon an investment.For this the size of the cashflows, the time at which they occur and the discount rate are all of importance.

WORKINGS