ECON 100 Tutorial: Week 3 [email protected] office: LUMS C85.
Tutorial Set 3 Week 3
2
BFW2631 FINANCIAL MANAGEMENT TUTORIAL SET 3 –WEEK 3 FINANCIAL MATHEMATICS Questio 1 It is presently July 1, 2012, and you need to raise $10,000 by July 1, 2017. You can invest money in your bank to earn an 8% return compounded annually. a ! "al cula te t#e amount o a de po si t made on Jul y 1, 2012, to pr ovide a bal an ce o $10,000 on July 1, 2017. b! I y ou decid e to make e ua l ann ual payments be&i nni n& on J uly 1, 201', calcula te t#e value o eac# payment. c ! Your at#er o ers to ma ke t#e payme nts ca lcul ated abo ve, or to &ive you $7,(00 on July 1, 201'. )#ic# *ould you select+ d! I y ou *ill only #ave t#e $7, (00 rom your a t#e r, calcu lat e t#e r ate o return you must earn to reac# t#e $10,000 reuired by July 1, 2017 e! Your a t#e r no* o er s to de pos it $1 ,8 0 ann ual ly r om Jul y 1, 20 1', c al cul ate t #e annual compound rate o interest you must earn to reac# your tar&et. ! I y our at #er o ers y ou $-,000 t oda y and you obt ai n a pa rt ti me / ob t #at p ays enou&# or you to make eual #alyearly deposits into a bank account *#ic# pays 8% interest per annum compounded semiannually, calculate t#e value o eac# deposit t#at you must earn in order to ac#ieve t#e desired $10,000 by July 1, 2017 &! "alculate t#e e ect ive ann ual rat e o t#e bank s o er i n part !.
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Transcript of Tutorial Set 3 Week 3
7/23/2019 Tutorial Set 3 Week 3
http://slidepdf.com/reader/full/tutorial-set-3-week-3 1/2
BFW2631
FINANCIAL MANAGEMENT
TUTORIAL SET 3 –WEEK 3
FINANCIAL MATHEMATICS
Questio 1
It is presently July 1, 2012, and you need to raise $10,000 by July 1, 2017. You can investmoney in your bank to earn an 8% return compounded annually.
a! "alculate t#e amount o a deposit made on July 1, 2012, to provide a balance o $10,000 on July 1, 2017.
b! I you decide to make eual annual payments be&innin& on July 1, 201', calculate t#e
value o eac# payment.
c! Your at#er oers to make t#e payments calculated above, or to &ive you $7,(00 onJuly 1, 201'. )#ic# *ould you select+
d! I you *ill only #ave t#e $7,(00 rom your at#er, calculate t#e rate o return you mustearn to reac# t#e $10,000 reuired by July 1, 2017
e! Your at#er no* oers to deposit $1,80 annually rom July 1, 201', calculate t#eannual compound rate o interest you must earn to reac# your tar&et.
! I your at#er oers you $-,000 today and you obtain a parttime /ob t#at pays enou&#or you to make eual #alyearly deposits into a bank account *#ic# pays 8% interest
per annum compounded semiannually, calculate t#e value o eac# deposit t#at youmust earn in order to ac#ieve t#e desired $10,000 by July 1, 2017
&! "alculate t#e eective annual rate o t#e banks oer in part !.
7/23/2019 Tutorial Set 3 Week 3
http://slidepdf.com/reader/full/tutorial-set-3-week-3 2/2
Questio 2
abu arad*a/ is plannin& to save or #is sons university education. is son is currently 11years old and *ill be&in university in 7 years. abu #as an inde3 und investment o $17 (00earnin& 4.( per cent annually. 5otal e3penses currently at t#e 6niversity o ydney *#ere #isson says #e plans to &o, currently costs $2(000 per year but are e3pected to &ro* at rou&#ly -
per cent every year. abu plans to invest a certain amount in an investment und t#at *ill earn11 per cent annually to make up t#e dierence bet*een t#e education e3penses and #is currentsavin&s. In total, abu *ill make seven eual investments *it# t#e irst startin& today and*it# t#e last bein& made a year beore #is son be&ins university.
!" )#at *ill be t#e present value o t#e - years o education e3penses at t#e time t#atabus son starts university+ ssume a discount rate o per cent.
#" )#at *ill be t#e value o t#e inde3 und *#en #is son /ust starts university+$" )#at is t#e amount t#at abu *ill #ave to #ave saved *#en #is son turns 18 i
abu plans to cover all o #is sons university e3penses+%" o* muc# *ill abu #ave to invest every year in order or #im to #ave enou&#
unds to cover all #is sons e3penses+
