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FIN2704 AY24-25 Sem1 Tutorial 3 Questions

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20 views2 pages

FIN2704 AY24-25 Sem1 Tutorial 3 Questions

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zhousuying
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FIN2704/X AY24/25 Semester 1 Tutorial 3

#1:
a) You just opened a savings account that pays 13% APR compounded daily.
Assuming there are 365 days in a year, what is the Effective Annual Rate (EAR) of this savings
account?

b) The EAR of an investment account is given as 23.25%.


The account compounds every 4 months.
What is the APR of this investment account?

c) Wolf Finance Company quotes an interest rate of 13.1% for a one-year loan.
If you borrow $10,000, the interest amount is worked out to be 13.1% of $10,000, which equals
$1,310.
Since you would need to repay $10,000 + $1,310 = $11,310 in total, the company requires you to
$"",$"%
pay "& = $942.50 each month for the next 12 months.
What should the correct APR be for this loan? And what is the EAR?

#2:
a) You need to pay $3,700 at the end of every six months. The APR is 18.25%. What is the FV of this
payment stream after 18 years?

b) You need to pay $3,700 at the end of every six months. The APR is 18.25% and compounds daily.
What is the FV of this payment stream after 18 years?

c) Which part has the higher FV. Explain why this is so.

#3:
Mr. Lee wants to save money to meet three objectives.
First, he would like to be able to retire 25 years from now with a retirement income of $10,000 per
month for 30 years, with the first payment received at the end of the first month after retirement.
Second, he would like to purchase a yacht at the end of 10 years from now at an estimated cost of
$800,000.
Third, at the end of the 30 years of withdrawals, he would like to leave an inheritance of $3.2 million
to his daughter.
He can afford to save $5,100 at the end of every month for the next 10 years. If he can earn an EAR of
8.25 percent before he retires and an EAR of 5.75 percent after he retires, how much will he have to
save at the end of every month in Years 11 through 25? Round your answer to the nearest dollar.

#4:
You are saving up for a holiday at the end of two years from now that will cost $13,500.
You will save money in a fund that promises a return of 12% compounded annually.
You make your first deposit today but can only save once every six months.
You make your final deposit at the end of year 2. Each deposit is for the same amount of money.
How much must you save each time to have enough money?
Round your answer to the nearest whole number.
#5:
You would like to take a $600,000 equal monthly instalment mortgage with Money Bank at a rate of
3.75% APR.

a) You can afford to pay $3,250 at the end of every month. How many years will it take to pay down
this loan completely? Round your answer to the nearest whole number.

b) Suppose you would like to repay the loan in 20 years. How much would the monthly instalment be
now? Round your answer to 2 decimal places. Use the DBS online calculator to verify your answer.
https://www.dbs.com.sg/personal/marketplace/property/plan/refinance

c) How much less total interest would you pay in the first 3 months if you pay down the loan in 20
years as compared to taking 23 years? Round your answer to the nearest whole number.

d) How much lower is the balance after the first 3 months if you pay down the loan in 20 years as
compared to taking 23 years? Round your answer to the nearest whole number.

#6:
You need a car loan of $180,000 from a bank in Singapore. The bank charges an annual interest rate of
2.78% (stated on a “flat” basis) for a 6-year loan with monthly payments.
a) How much is your monthly car loan payment? Round your answer to the nearest whole number.

b) What is the APR of this loan? Round your answer to 2 decimal places.

Verify your answer with the DBS car loan online calculator:
https://www.dbs.com.sg/personal/calculators/autoloan/monthly-instalment.page?pid=sg-dbs-
pweb-loans-calculator-btnlink-monthly-instalments-calculator

c) What is the EAR of this loan? Round your answer to 2 decimal places.

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