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Acst6003-Week4 Tutorial-Computer-Lab

The document provides instructions for a tutorial and computer lab on finance topics. Students are asked to spend the first 50 minutes answering tutorial questions and the remaining 40 minutes replicating Excel exercises from the provided chapter. The tutorial questions cover topics like APR, interest rates, present and future values, annuities, and perpetuities. An amortization schedule is also to be prepared in Excel.

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Andre OKc
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Download as PDF, TXT or read online on Scribd
21 views

Acst6003-Week4 Tutorial-Computer-Lab

The document provides instructions for a tutorial and computer lab on finance topics. Students are asked to spend the first 50 minutes answering tutorial questions and the remaining 40 minutes replicating Excel exercises from the provided chapter. The tutorial questions cover topics like APR, interest rates, present and future values, annuities, and perpetuities. An amortization schedule is also to be prepared in Excel.

Uploaded by

Andre OKc
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Tutorial & Computer Lab – Week 4

Parrino et al. Chapter 6

Instructions

• Spend first 50 min on these tutorial questions

• Spend the remaining 40 min on replicating all Excel exercises from Parrino et al.
Chapter 6, i.e. create a new Excel file and redo all Excel examples from that
chapter

Note: Tutors may not be able to cover all tutorial questions/excel exercises during the
tutorial time. Students are expected to complete all remaining exercises as part of their own
self-study.

1. What is the APR, and why are lending institutions required to disclose this rate?

2. What is the correct way to annualise an interest rate in financial decision making?

3. Distinguish between quoted interest rate, interest rate per period, and effective
annual interest rate.

4. Future value with multiple cash flows: Stephanie Holland plans to adopt the following
investment pattern beginning next year. She will invest $2719 in each of the next 3
years and will then make investments of $3650, $3725, $3875 and $4000 over the
following 4 years. If the investments are expected to earn 7.3 per cent annually, how
much will she have at the end of the 7 years?

5. Present value with multiple cash flows: Polly Chan, a lottery winner, will receive the
following payments over the next 7 years. If she can invest her cash flows in a fund
that will earn 10.5 per cent annually, what is the present value of her winnings?
6. Calculating annuity payment: Marco Boncordo is a Year 9 student. He currently has
$7500 in a savings account paying 5.65 per cent annually. Marco plans to use his
current savings plus what he can save over the next 4 years to buy a car. He estimates
that the car will cost him $12 000 in 4 years. How much money should Marco save
each year if he wants to buy the car?

7. Calculating number of periods: Johnny Johnson borrowed $75 000 to purchase a


caravan. The terms of his loan require him to make quarterly payments of $3434 over
7 years. The discount rate is 7.2 per cent per annum (compounding quarterly). How
much sooner will he pay off the loan if he makes quarterly payments of $3876 instead?

8. Future value of an annuity due: Joshua Lipscombe plans to save $4613 every year for
the next 8 years, starting today. At the end of 8 years, Jeremy will turn 30 years old
and plans to use his savings toward the deposit on a house. If his investment in an
investment fund will earn him 9.5 per cent annually, how much will he have saved in
8 years when he will need the money to buy a house?

9. Present value of an annuity due: Sharon Lance has won a lottery and will receive a
payment of $85 950.97 every year, starting today for the next 20 years. If she invests
the proceeds at a rate of 5.52 per cent per annum, what is the present value of the
cash flows that she will receive?

10. Perpetuity: Calculate the present value of the following perpetuities:


a. $1250 discounted to the present at 7 per cent.
b. $7250 discounted to the present at 6.33 per cent.
c. $850 discounted to the present at 20 per cent.
11. Effective annual rate: You are considering three alternative investments: (1) a 3-year
bank term deposit paying 7.5 per cent interest compounded quarterly; (2) a 3-year
bank term deposit paying 7.3 per cent interest compounded monthly; and (3) a 3-year
bank term deposit paying 7.75 per cent interest compounded annually. Which
investment has the highest effective annual rate?

12. Your grandfather has agreed to deposit a certain amount of money each year into an
account paying 7.25 per cent annually to help you go to university. Starting next year,
and for the following 4 years, he plans to deposit $2250, $8150, $7675, $6125, and
$12 345 into the account. How much will you have at the end of the 5 years?

13. Gary Dahl will turn 30 years old next year. He comes up with a plan to save for his
retirement at 67 years of age. Currently, he has saved $40 000 in a balanced
superannuation account earning 8.3 per cent annually. He also currently has invested
an inheritance of $50 000 in a money market account earning 5.25 per cent per annum
and plans to leave it as part of his retirement savings. He has set himself a retirement
target of $2 000 000. How much must be deposited in his superannuation account
each year to reach his target? If Gary is earning $60 000 a year and 9 per cent of his
salary is deposited into his superannuation by his employer, would Gary have to make
further contributions to enable him to reach his goal?

14. The Harding's are buying a new 4 bedroom house in Albury-Wodonga and will borrow
$337 000 from Westpac at a rate of 8.375 per cent per annum for 25 years. What is
their monthly loan payment? Prepare an amortisation schedule using Excel. Assume
interest compounds monthly.

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