Analysis and Decision Making for a Housing Project

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Q.1 (A)Principal Amount \$1,00,000 Time 3 Years Interest Annually Compounded Future ValueP(1+R)nP = PrincipalR = Rate of Interest n = TimeParticularsAt 1 %At 2% At 3%Principal Amount\$1,00,000 \$1,00,000 \$1,00,000 Cumulative factor1.03031.06121.0927Future Value\$1,03,030 \$1,06,120 \$1,09,270 Q.1 (B)Calculation of Future ValueBank offer CD 3% Nominal Interest MonthlyCompoundedMonthly Interest Rate3/12 = .25%Annually Effective Rate(1+R)n(1+.25)12Annually Effective Rate1.0342Value of investment \$1,00,000 Time3 YearsFuture value\$100000(1+.25)36\$1,09,405
Q.2 (A)Calculate Amount to be InvestedAmount Needed after 3 years = \$500000Rate of Interest3 % P.A.Future Value = P(1+R)n\$500000=P(1+3)3\$500000=P(1.0927)Principal\$4,57,570 Q.2 (B)Calculation of Annual Rate Of ReturnFuture value = Present Value(1+r)n\$500000=\$450000(1+r)31.1111= (1+r)3(1+r)=1.0357R= 1.0357-1 = 0.0357 or 3.57%Q.2 (C)Calculation of Annuity DueFV = Annuity [(1+r)n-1]*(1+r)/r\$500000 = Annuity[(1+0.04)3-1]*(1+0.04)/0.04\$500000 = Annuity(1.12486-1)*(1.04)/.04\$500000 = Annuity 3.24646Annuity = 154014 (rounding off)

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