Five years ago, Mike borrowed a home loan of $500,000, repayable by equal monthly instalments over 30
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Question:
a) What is the original monthly repayment when interest rate is 3.6% p.a. compounding monthly?
b) What is the balance owing now? (3 marks)
c) If the loan term is to remain unchanged, what will be the new monthly repayment when interest rate increases to 5.4% p.a. compounding monthly? (3 marks)
d) If the monthly payment is unchanged, how many months will the loan term increase when interest rate increases to 5.4% p.a. compounding monthly? (3 marks)
Question 2 (12 marks)
James purchases a five-year government bond which makes annual coupon payments of 5% and offers a yield of 3% annually compounded. The face value of this government bond is $1000. Suppose one year later the bond yields drops to 2%, James decides to sell the bond in the market.
a) What is the price of this five-year government bond when it is issued? (4 marks)
b) What is the price of this bond one year later? (4 marks)
c) What return will James earn for this 12-month investment? (4 marks)
Question 3 (14 marks)
Healthy. Ltd is considering a proposal to produce organic food. It will involve an initial investment of $100,000. In each of years 1 to 10, the project is estimated to produce sales of $80,000 with sales volume of 5,000 and to incur variable costs of $35,000 and fixed costs of $25,000. The cost of capital is 10%.
a) Calculate the NPV of this project.
b) What is the break-even level of sales volume?
Related Book For
College Algebra Graphs and Models
ISBN: 978-0321845405
5th edition
Authors: Marvin L. Bittinger, Judith A. Beecher, David J. Ellenbogen, Judith A. Penna
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