Accounting & Finance Study Material

ACCOUNTING & FINANCE
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Question 1
(a) (i) Effective interest rate would be taken into consideration to find the suitable payment
option for Jayne.
Option 1
It includes a nominal interest rate of 4.55% per annum which compounded weekly.
Option 2
It includes a nominal interest rate of 4.75% per annum which compounded weekly.
It can be observed from the above computation that effective interest rate comes out to be
inferior for option 1 (when nominal interest rate is 4.55%). Therefore, it Jayne should use
option 1 payment option.
(ii) The total number of weeks for the instalment amount has been calculated through the
formula as shown below.
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Hence, there would be 657.85 weeks.
(b) (i) Contribution in every month = $X
FV of annuity (after 18 years) =$200,000
Jennifer is contributing 30% of the total amount and therefore, the monthly payment is
computed below.
Monthly payment = 30% of P = 0.30 * 734.11 = $220.2
(ii) The total payment that Jennifer would get at the age of 28 years has been computed as
highlighted below.
On her 18th birthday, the total amount remains to Jennifer
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At the age of 28 years, the total amount remains to Jennifer
(iii) Total loan amount and the amount of instalment is calculated as given below.
Hence, the total monthly instalment would be $3558.3.
Question 2
The relevant computations in excel shown below for part (a) and part (b).
In order to understand the precise working, the formula view is also provided below for both
parts (a) and parts (b).
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