Financial Management | Answers to Questions

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

FINANCIAL MANAGEMENT1
Table of Contents
Answer to question 1:......................................................................................................................3
Answer to question 2:......................................................................................................................3
Answer to question 3:......................................................................................................................3
Part a:...........................................................................................................................................3
Part b:...........................................................................................................................................4
Answer to question 4:......................................................................................................................4
Part a:...........................................................................................................................................5
Part b:...........................................................................................................................................5
Answer to question 5:......................................................................................................................6
Part a:...........................................................................................................................................6
Part b:...........................................................................................................................................7
Part c:...........................................................................................................................................7
Answer to question 6:......................................................................................................................7
Part a:...........................................................................................................................................7
Part b:...........................................................................................................................................8
Answer to question 7:......................................................................................................................8
Part a:...........................................................................................................................................8
Part b:...........................................................................................................................................9
Part c:...........................................................................................................................................9

FINANCIAL MANAGEMENT2
Part d:...........................................................................................................................................9
Part f:.........................................................................................................................................10
Part g:.........................................................................................................................................10
References and bibliography:........................................................................................................12

FINANCIAL MANAGEMENT3
Answer to question 1:
Year 1 2 3
Income from the trust $ 40,000 $ 30,000 $ 60,000
Consumptions $ -32,000 $ -42,000 $ -
Balance (Income –
Consumption) $ 8,000 $ -12,000 $ 60,000
Compounding factor
@5% p.a. 1.1025 1.0500 1.0000
Compounded value
8000*1.1025 = $
8,820
-12000*1.0500 = $ -
12,600
60000*1.0000 = $
60,000
Consumption in two years = 8820+12600+60000 = $56,220
Answer to question 2:
In an ordinary annuity, the amount is paid at the end of the period whereas in an annuity
due, the amount is paid at the beginning of the period. As per the time value of money concept,
the amount is more preferable at present rather than a certain time period hence. Hence, it is
more beneficial to invest in an annuity due. Amount received from an annuity due at the
beginning of the period can be invested in another investment option. For example, if from an
annuity due, an amount of $10,000 is received at present it can be invested in market or in any
other investment option which can give a significant amount of earnings. If the same amount is
received at the end of the period then there would be a loss of interest earnings (Khan&
Jain2018).
Answer to question 3:
Part a:
Loan amount = $75,000
Interest rate per annum = 7.20%