Fundamental of Finance Assignment in PDF

Running head: FUNDAMENTAL OF FINANCE
Fundamental of Finance
Name of the Student:
Name of the University:
Author’s Note:

1FUNDAMENTAL OF FINANCE
Table of Contents
Answer to question 1:......................................................................................................................2
Part a:...........................................................................................................................................2
Part b:...........................................................................................................................................2
Part c:...........................................................................................................................................3
Answer to question 2:......................................................................................................................5
Part a:...........................................................................................................................................5
Part b:...........................................................................................................................................7
Answer to question 4:......................................................................................................................8
Part a:...........................................................................................................................................8
Part b:...........................................................................................................................................8
References......................................................................................................................................12

2FUNDAMENTAL OF FINANCE
Answer to question 1:
Part a:
Balance in share portfolio = 750000
Balance in superannuation account = 1200000
Balance in cash = 500000
Rate of return in share portfolio = 12% per annum
Rate of return in superannuation account = 9% per annum
Rate of return in cash account = 1.2% per annum
Years to maturity = 17 years
Annual contribution to the superannuation account = 25000
Value of total investment in 17 years
=
[ ( 750000 × ( 1+12 % ) 17 ) + ( 25000
12 % × ( ( 1+ 12% ) 17−1 ) ) ] + [ 1200000 × ( 1+9 % ) 17 ] + [ 500000 × ( 1+1.2 % ) 17 ]
= 6371623+5193160+612405
= $12,177,188
Part b:
Investment in trust at the age of retirement = 12177188
Interest on the investment in trust = 8% per annum

3FUNDAMENTAL OF FINANCE
Annual living expenses = 500000
Life expectation after retirement = 23 years
Annual withdrawal = (A)
Applying present value formula of annuity:
12177177=( A
8 % × (1− ( 1+8 % )−23 ))
Solving the above equation, the annual withdrawal would be $1,174,151
Hence, there would be enough amount for the donation after meeting the cost of living from the
annual withdrawals.
Part c:
Cost of the car = 350000
Amount to be utilized from the cash account = 150000
Amount of mortgage = 350000-150000 = 200000
Rate of interest = 6.6% per annum
Term of the loan = 5 Years
Monthly installment payment (A)
Applying present value formula of annuity:
200000=
( A
6.6 %
12
× (1− (1+ 6.6 %
12 )−5 ×12
) )