Fin700 Midterm Exam Formula Sheet
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Question One
KOI
Trimester 1, 2018
FIN700 – Financial Management
ASSIGNMENT– GROUP
Due date: Submit to your Tutor by the start of your Tutorial in Week 9:
Monday, 14 May, or on Tuesday, 15 May, or on Saturday, 19 May, 2018.
Keep a soft copy in case of misadventure.
Penalties for late lodgment, as per the Subject Outline, will be strictly applied.
This Assignment consists of 4 problems, each involving calculations, and in some cases recommendations.
You are required to complete this Assignment in Groups of 2 or 3 or 4 people. **Groups of 1 or more than 4 persons will incur a penalty of 5 marks out of 30%.**
All members of the Group should come from the same Tutorial class. You may consult and discuss the Assignment topic with others, but you must write up your answers yourselves. Penalties for copying and plagiarism are severe.
You should follow the following typing conventions:
· Answers to be typed, in the space provided after each question
· If additional pages are required, use the blank pages at the end.
· Times New Roman font (at minimum, 12 pitch), 1.5 line spacing; and
· Left and right margins to be at least 2.5 cm from the edge of the page.
Research, Referencing and Submission
You should quote any references used at the end of each question.
Use Harvard referencing! See http:
en.wikipedia.org/wiki/Harvard_referencing
As this is a calculations problem, there is no need to submit via TURNITIN.
Do not submit this page. Submit page 2 onwards, along with KOI Group Assignment Cover Page& Mark’g Ru
ic.
Marking Guide
The Assignment will be scored out of 70%, with 20 marks also awarded for quality of Recommendations and 10 for Presentation, in line with the ru
ic in the Subject Outline. This mark will be converted to a score out of 30%.
Dr Mervyn Fiedler, Subject Coordinator, FIN XXXXXXXXXXApril, 2018.
______________________________________________________________________
***NOTE:When submitting Assignment, please submit from this page onwards, with a KOI Group Assignment cover page in front,
and a FIN700 Marking Ru
ic at the back.***
Trimester T118
FIN700
GROUP ASSIGNMENT
Students: Please complete the following before submitting for marking.
Group members
XXXXXXXXXXStudent No XXXXXXXXXXStudent Name XXXXXXXXXXPercentage Contribution to Assignment XXXXXXXXXXSignature
1. ………………………………………………………………………………………………
2. ………………………………………………………………………………………………
3. ………………………………………………………………………………………………
4. ………………………………………………………………………………………………
Tutor:
Please circle one name: Ms Ruhina Karim; Mr Nishith Panthi; Mr Paul Power;
XXXXXXXXXXMs Farzaneh Ortacand; Mr Ethan Zheng
Tutorial Day …………………………………………………and Time ……………………….
This Assignment consists of four questions. All questions must be answered.
Please answer all questions in the spaces provided after each question.
Two extra pages are included at the end of the Assignment. If more pages are required, please copy (or extend) page 14.
QUESTION `1. [ XXXXXXXXXX = 16 Marks.]
a) This is a two period certainty model problem.
Assume that Daisy Brown has a sole income from Fantasy Ltd in which she owns 15% of the ordinary share capital. Cu
ently, she has no savings.
In Fe
uary, 2018, Fantasy Ltd reported net profits after tax of $600,000, and announced it expects net profits after tax for the cu
ent calendar year, 2018, to be 30% higher than last year’s figure. The company operates with a dividend payout ratio of 75%, which it plans to continue, and will pay the annual dividend for 2017 in lateMay, 2018, and the dividend for 2018 in lateMay, 2019.
In lateMay, 2019, Daisy wishes to spend $100,000, which will include the cost of an overseas trip. How much can she consume in lateMay, 2018 if the capital market offers an interest rate of 10% per year?
) This is an annual equivalent costs problem.
Y Ltd has received two offers for a new computer system. System P will cost $200,000 now, has a three year life and costs $10,000 a year to operate. System Q costs $240,000 now, has a four year life and costs $12,000 a year to operate. The relevant discount rate is 6 per cent per annum. Ignoring depreciation and taxes, calculate the AEC for each. Which do you prefer, and why?
QUESTION 1 continued.
c) This question relates to the valuation of interestbearing securities.
Wildcat Bank Ltd has experienced large losses on its commercial loan portfolio and is unable to meet its next two annual interest payments on its recent issue of unsecured notes. The notes are of $1,000 face value each, mature in May, 2023 and bear a yearly interest coupon payment of 14% per annum.
The Bank paid the interest due this month (May, 2018), and following a meeting of creditors, a
anged to defer payment of the next two interest coupons due in May, 2019 and May, 2020 respectively. Under the a
angement with creditors, the Bank will pay the remaining interest coupons (due in May, 2021, May, 2022 and May, 2023) on their due dates, and pay the two defe
ed coupons (without interest) along with the normal final interest payment and face value of the notes on the maturity date.
Wildcat Bank Ltd’s notes are now seen as risky, and require an 18% per annum return.
REQUIRED: Calculate the cu
ent value of each Wildcat Bank unsecured note.
QUESTION 2. [ XXXXXXXXXX + 3) = 18 Marks]
a) This question relates to the time value of money and defe
ed 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?
ii) 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?
QUESTION 2 continued.
) This question relates to loan repayments and loan terms.
Jack and Jill Jacobs wish to bo
ow $700,000 to buy a home. The loan from the Highway Bank requires equal monthly repayments over 20 years, and ca
ies.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, co
ect to 3 decimal places).
ii) the amount of the monthly repayment (consisting of interest and principal repayment components) if the same amount