Financial Math Answers

If you invest $500 today in an account that pays 6 percent interest compounded annually, how much will be in your account after two years?

Mr. Pascual, an airline owner, decided to invest P2.5 million to fund his department handling  spare parts replacement. How long will it take his investment to accumulate to P3.325  million if the bank’s interest rate is 5.5%?

Abbey Fish Company will pay a R5.00 per share dividend next year. The company

pledges to increase its dividend by 3% per year indefinitely. If you require a 16%

return on your investment, how much will you pay for the company’s shares today.

A Telkom company bond carries an 8% coupon, paid semi-annually. The par

value is R1000, and the bond matures in six years. If the bond currently sells for

R911.37, what is its yield to maturity?

Suppose you have celebrated your 19th birthday. A rich uncle set up a trust fund

for you that will pay you R100 000 when you turn 25. If the relevant discount rate is

11 percent, how much is the fund worth today?

Assume the total cost of a tertiary education will be R75 000 when your child

enters university in 18 years. You presently have R7 000 to invest. What rate of

interest must you earn on your investment to cover the cost of your child’s tertiary

education?

Three years ago Lilly borrowed R10 000 from Faith on condition that she should pay her back two years from now. She also owes Faith R6 000 payable five years from now. The appliable interest rate for both transactions is 13,75% per year,compounded every six months. After considering her payback shedule, Lilly asks Faith if she an pay her R9 000 now and the rest in four years' time. She agrees on ondition that the new agreement will run from now and that an interest rate of 16,28% per year, compounded monthly,

will be appliable from now. The amount that Lilly will have to pay Faith four years from now is

Peoples Limited has the following securities in issue:

• 1 million ordinary shares currently trading at N$1.30 each. The last dividend paid

amounted to 15.5 cents and the earnings and dividends of Peoples are expected

to grow at 4% per annum.

• 250 000 non-redeemable 7% preference shares with a nominal value of

N$1.10 each. These shares are currently trading at N$0.65 per share.

• 1 550 12% unsecured bonds with a nominal value of N$100 each

currently trading at N$85 each. These bonds are redeemable in 3 years’

time at the nominal value.

Required:

(a) Calculate the weighted average cost of capital for Peoples Limited using market

values. (10 marks)

(b) Is there another way to calculate the weighted average cost of capital?

Support your answer with a brief explanation. Define all terms used in

your answer.

BAT Industries is a manufacturer of orange juice in Jamaica. In 2022 it sold a bottle of orange juice to wholesalers for $100 and its variable costs is $40 and fixed costs is $100,000 monthly:

Using the information provided. 

i. How many bottles of orange juice must the company sell in order to break even and what is the breakeven revenue? 

ii. If the company sold 1,500,000 bottles of orange juice for the year 2022, what was its profit? 

iii. Due to inflation, in 2023 fixed costs are expected to rise to $175,000 monthly. What will be the NEW break-even quantity and revenue? 

iiii. If the company will sell the same number of orange juice as it did in 2022 and it wants to make the same profit as in 20222, what price should they sell each bottle of orange Juice for in 2023? 

How long does it take for 900 to accumulate to 1000 under an interest rate of 4% per annum?