Finance Assessment — 15 Maths Questions + 1 x 500 word short answer with trend plotting Essay Example

Finance Assessment

University Affiliation

1. For the 16 years, the amount of money in the account will be (principal amount + the interest earned). Future value = present value (1+interest rate) ^n, where n represent the number of years in interest is earned (McGraw, 2014).

\$100(1.065) ^16

= \$273.90

Up to 30 years, we have 14 years remaining. Therefore, 3% interest will be in the remaining 14 years. We have;

273.90(1.03) ^14

= \$414.30

Therefore, the amount in my account is \$414.30

1. Present value = future value/ (1+interest rate) ^ number of years

Future value = \$1,000,000*(1.02) ^ 30

= \$1,811,361.58

In 30 years from now, the value will have depreciated, therefore, the real value by then will be \$1,811,361.58

1. P = PMT x (((1 + r) ^ n — 1) / r)

P = the future value of an annuity stream

PMT = the dollar amount of each annuity payment

r = the interest rate

n = the number of periods in which payments will be made

P = 20,000*(((1.04) ^10-1)/0.04)

P= \$240,122.14

P= 18,000*(((1.04^15-1)/0.04)

= \$360,424.58

I will prefer \$18,000 a year for 15 years as it offers higher value.

1. P = PMT x ((1 — (1 / (1 + r) ^ n)) / r)

P = the present value of an annuity stream

PMT = the dollar amount of each annuity payment

r = the interest rate

n = the number of periods in which payments will be made

P = ((15,000 * ((1-(1/1.06) ^ 6))/0.06)

P= \$73,759.86 (after 2 years).

Today, 73,759.86/ (1.06) ^2

= \$65,646.01

1. The total loan due is \$24,000

Instalments total; 36*800 28,800

Interest amount will be given by 28,880-24,000 = 4,880

Future value = present value (1+interest rate) ^no of years

28,880 = 24,000(1+r) ^ 3

28,880/24,000 = (1+r) ^ 3

1.2 = (1+r) ^3

1+r = 1.06

r = 1.06-1

 c(1 + r)-1 + c(1 + r)-2 + . . . + c(1 + r)-Y + B(1 + r)-Y = P where c = annual coupon payment Y = number of years to maturity B = par value P = purchase price (Batten et al. 2014, 775-803).

P= 43.20(1.04) ^ -12 + 1,080(1.04) ^ -12

P = 26.98 + 674.56

Purchase price = 701.54

YTM = coupon/ purchase price

43.20/701.54

1. The difference between YTM and the current yield, divided by YTM.

(6-5.33)/6 *100

= 11.17 years.

1. Return on a bond is given by; end of the period principal + coupon interest + compound interest, less any costs or fees, then divided by the initial principal.

((X1+6%y+6%y) – (X2+6%y+5%y))/y

Present value of a bond/bond price

1. When the bond is downgraded, the same period of time remains that is 6 years and will sell at a yield of 4.9%.

Bond price = (6.2/4.9)*100

Bond price=\$126.53

1. YTM = coupon/purchase price

6.2% = 3.60/x

X= 3.60/0.062

X = \$58.06

The stock is selling at \$58.06

1. The expected rate of return of the stock = dividend/growth rate (KUEHN et al. 2014, 2741-2776).

Dividend/growth rate = 2.8/0.028= 100

Therefore, (22/100)*100 = 22%

1. YTM = coupon/purchase price

26% = c/80

Dividend = \$4 per share

4/20.8*100

1. Current stock price =0.80/ (1.14^1) + 1.20(1.14^2 + 1.60(1.14^3) + 2(1.14^4) + 16(1.14^5)

Current price = 0.70 + 0.92 + 1.08 + 1.18 + 8.31

1. P/E ratio = market price per share/earning per share

YTM = coupon/purchase price

11.8% = 60%/purchase price

Purchase price = 0.6/0.118

P/E= 5.08/3.80

 Non-Government Rates State Government interest rates 0 Australian Government

Bond yield interest rates in Australia for period 1992-2017: Table of Data

Overall Australian Cash Rate and 1997-2017 Bill 1

The cash interest rates charged on the local government loans pose a direct effect through of the rates at which their securities trade on the national Australian debt market at the time the loan is valued, plus debentures administrative cost margin.

Weighted dollar trade index in Australia: Table of data

 INTEREST INDEX (Real) INTEREST INDEX (Nominal)

Weighted dollar trade index in Australia

The strength and financial strength of the Western Australian government is a key determinant in the utility bonds and interest rates. The interest rates charged by the government increased exponentially for the period 1987-1990: This surge of interest rates is shown by the nominal weighted trade index which varies periodically within a period of not exceeding a month (shown on the graph)

Cash Rates and Bill yields for the Australian economy for the period 1997-2017

 Cash Rate Residential Security Overdraft Security

Australian cash rate and overdraft rate 1

The range at which longer-term securities trade in the Australian market is relative to the key market determinant reference rates as shown by the term residential security (for example, from the graph, the overdraft and the cash rates kept fluctuating for the period starting 1997 to 2005. This is owed to the global economic crisis at such time which affected all economies. The interest rates on government securities and the cash rates on overrafts and cash trade went down.

References

Batten, Jonathan A., Karren Lee‐Hwei Khaw, and Martin R. Young. «Convertible bond pricing models.» Journal of Economic Surveys 28.5 (2014): 775-803.

Bodie, Zvi. Investments. McGraw-Hill, 2013.

Dew‐Becker, Ian. «Bond Pricing with a Time‐Varying Price of Risk in an Estimated Medium‐Scale Bayesian DSGE Model.» Journal of Money, Credit and Banking 46.5 (2014): 837-888.

KUEHN, LARS‐ALEXANDER, and Lukas Schmid. «Investment‐Based Corporate Bond Pricing.» The Journal of Finance 69.6 (2014): 2741-2776.

Richard McKenzie, Tamara Marsh. “Financial solutions for the benefit of all western Australians”. Journal of Western Australian Treasury Corporation

Saunders, Anthony, and Marcia Millon Cornett. Financial institutions management. McGraw-Hill Education, 2014.