Financial Math Answers

You are considering an annuity which would offer payments $ 5000 at the end of every three months for 20 years. Interest is compounded quarterly at a nominal rate of 8.8%. Which of the changes would increase the amount that you would pay for this annuity today?

Bongeka purchased a new refrigerator and were expected to pay R1 684,00 five months ago and another

R1 323,00 in eight months’ time. She could not make the payment five months ago, but after receiving a

bonus at work, she rescheduled to repay the loan in two equal payments, the first due in two months and the

second due in five months’ time. The payment at month five will settle the debt, therefore, the settlement

date is month five. The debts and payments are subject to the same interest rate of 11,4% per annum,

compounded monthly.

@ 11,4% per year, compounded monthly

The value of each of the payments, rounded to the nearest rand, is equal to

Abongile, the manager of a construction company is renovating a home and has expenses of R200 000,00

now and another R41 812,00 in six months’ time. As he finds it difficult to find the cash now, he proposes

to settle all the debt after six months with a single payment. The debt is subject to an interest rate of 9,5%

per annum, compounded quarterly. What is the value of the payment that will settle his debt at the end of

month six?

When his son was three years old, Vuyisanani made a deposit of R16 200,00 in the bank. The investment

grew at a simple interest rate and when Vuyisanani’s son was 22 years old, the value of the investment was

R46 980,00. Had the interest been 1,25% less, how much interest would he have lost?

You are considering an annuity which would offer payments $ 5000 at the end of every three months for 20 years. Interest is compounded quarterly at a nominal rate of 8.8%. Which of the changes would increase the amount that you would pay for this annuity today?

a.

Compounding interest semi-annually instead of quarterly

b.

Compounding interest daily instead of quarterly

c.

Receiving payments for 19 years instead of 20 years

d.

Receiving payments of $ 4500 instead of $ 5000

e.

A nominal rate of 9.2% instead of 8.8%

The following information relating to this investment proposal has now been prepared: If production remained at 5,100 units, the current selling price would be expected to continue throughout the remainder of the life of the product. However, if production is increased, it is expected that the selling price will fall to $45 per unit for all units sold. Again, this will last for the remainder of the life of the product. No terminal value or machinery scrap value is expected at the end of four years, when production of NEW AGE is planned to end. For investment appraisal purposes, Good Hope uses a nominal discount rate of 10% per year and a target return on capital employed of 20% per year. Ignore taxation. Required: (a)Calculate the following values for the investment proposal: (14 marks) (i)net present value; (ii) internal rate of return; (iii)return on capital employed (accounting rate of return) based on initial investment; and. (iv)discounted payback period

b) In order to effectively manage the movement of resources between Limuru, Nairobi and Nakuru Campuses of St Pauls’ University, the following input-output transitions database has been determined so as to help in the development of a quantitative model for making future management decisions.

Source Campus Destination Campus External Demand

Limuru Campus Nairobi Campus Nakuru Campus

Limuru Campus 0 40 50 210

Nairobi Campus 30 0 50 320

Nakuru Campus 30 40 0 430

Others 240 320 400

Total 400 500 500

i) Account for the number of resources leaving each campus when the external demand for these resources from the Limuru campus, Nairobi Campus, and Nakuru Campus is 440, 528, and 704 respectively                                (3 Marks)

ii) Distribute the quantities obtained in (i) among the various destinations.