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FIN700 Financial Management - Asasignment

   

Added on  2021-06-16

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KOIFIN700 – Financial Management Penalties for late lodgment, as per the Subject Outline, will be strictly applied.You should follow the following typing conventions:Answers to be typed, in the space provided after each questionIf additional pages are required, use the blank pages at the end.Times New Roman font (at minimum, 12 pitch), 1.5 line spacing; andLeft and right margins to be at least 2.5 cm from the edge of the page.Research, Referencing and SubmissionYou should quote any references used at the end of each question.Use Harvard referencing! See http://en.wikipedia.org/wiki/Harvard_referencingMarking GuideThe Assignment will be scored out of 70%, with 20 marks also awarded for quality of Recommendations and 10 for Presentation, in line with the rubric in the Subject Outline. This mark will be converted to a score out of 30%.QUESTION 2. [(4 + 4) + (2 + 2 + 3 + 3) = 18 Marks]1

a)This question relates to the time value of money and deferred annuities.Joan Daly is age 38 today and plane to retire on her 600h birthday. With future inflation, Joan estimates that she will require around $1,800,000 at age 60 to ensure that he will have a comfortable life in retirement. She is a single professional and believes that she can contribute $3,600 at the end of each month, starting in one months’ time and finishing on her 60th birthday.i)If the fund to which she contributes earns 5.4% per annum, compounded monthly (after tax), how much will he have at age 60? Will she have achieved her targeted sum? What is the surplus or the shortfall?Fund at Age 60$1,800,000.00 Number of Years to Age 6022 yearsPMT$3,600.00 i(12)5.40%Monthly effective rate (j)=5.40%/12= 0.45%Using FormulaFuture Value of Annuity @i =PMT *{((1+j) n-1))/j}ThenFV at age 60 = 3600*{((1+0.45%)22*12-1))/0.45%} =$1,817,426Since 1,817,426 >1,800,000, Joan will have achieved her targeted sum at age 60. She will also have a surplusSurplus= Target-Future Value= 1,817,426-1,800,000=$17,426ii)Using the entire fund balance, Joan then wishes to commence a monthly pension payable by the fund starting one month after her 60th birthday, and ending on her 85th birthday, after which she expects that the fund will be fully expended. If the fund continues to earn the above return of 5.4% per annum, compounded monthly, how much monthly pension will Joan receive, if the fund balance reduces to zero as planned after the last pension payment on her 85th birthday?Fund at Age 60$1,817,426.13 Fund at Age 85$0Number of Years to Age 8525 yearsi(12)5.40%Monthly effective rate j=5.40%/12= 0.45%2

Find PMT?We can solve for PMT using Formula below:-Present Value of Annuity @i =PMT *{(1-(1+j)-n)/j}ThenPMT = Present Value of Annuity/{(1-(1+i)-n)/i}PMT=1,817,426.13/{(1-(1+0.45%)-25*12)/0.45%}PMT=$11,052.31Joan will receive a monthly pension of $11,052.31QUESTION 2 continued.b)This question relates to loan repayments and loan terms.Jack and Jill Jacobs wish to borrow $700,000 to buy a home. The loan from the Highway Bank requires equal monthly repayments over 20 years, and carries.an interest rate of 4.2% per annum, compounded monthly. The first repayment is due at the end of one month after the loan proceeds are received.You are required to calculate:i)the effective annual interest rate on the above loan (show as a percentage, correct to 3 decimal places).Using formula below, the effective annual rate (i) can be solved as EAR (i) = (1 + i(n)n)n - 1Wherei(n) is the Nominal rate and n is the compounding period In this scenario, we solve for EAR (i) as followsEAR (i) =( 1+i(n)/n)n-1 =( 1+i(12)/12)12-1 =( 1+4.2%/12)12-1 =4.282%Therefore, Effective annual rate is 4.282%3

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