PERSONAL INVESTMENTS Please round off your answers in this question, to the nearest $1. A. You are

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PERSONAL INVESTMENTS

Please round off your answers in this question, to the nearest $1.

A. You are evaluating to purchase an insurance policy that will provide a cash return of $5,000 in three years' time, $7,000 in five years' time, and $8,000 in nine years' time. The annual interest rate is 6%. What is the value of this investment today?

B. Recently you borrowed money for a new car. The loan amount is $25,000 to be paid back in equal monthly payments. The payments are to be made at the beginning of each month for a total of five years.The first payment is made today.Interest on the loan is 8% per annum.What is the amount of the monthly loan repayment?

C. You are planning to retire in 35 years, and he wants to have an annuity of $1,200 a year for 20 years after retirement.Charlie wants to receive the first annuity payment at the end of the 35^th year. Using an interest rate of 10%, how much must Charlie invest today in order to have his retirement annuity?

D. Differentiate between an effective interest rate and nominal interest rate. Explain the significance of effective interest rate. Use an example to illustrate your answer.

VALUATION OF BONDS AND SHARES

Please round off your answers in this question, to two decimal places.

A. Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semi-annually. The bonds have a face value of $1,000 and will mature 10 years from now. The investors' required rate of return is 12%.Complete the intrinsic value of Terminator bonds.

B. You are considering the purchase of CSL Limited's Company share. You anticipate that the company will pay dividends of $2.00 per share at the end of current year, $2.25 per share the next year and $2.30 per share the year following this. You believe that you can sell the shares for $17.50 per share three years from now.The required rate of return is 12%.Calculate the maximum price that you would pay for a share of SCL today.

C. Xero Tech Ltd issued a bond with face value of $100,000 and 6 years to maturity. Interest accrues on the bond quarterly at a rate of 10%. The required rate of return is 8% p.a. All interest accrued will be paid on the maturity with the principal. Calculate the present value of this bond?

D. The XYZ Company, whose ordinary shares are currently selling for $42 per share, is expected to pay a $2.50 dividend in the coming year. The investor believe that the expected rate of return on XYZ is 14%. Calculate the growth rate in dividends. [2 Marks]

E. 'Valuation is an important component of financial management because it underlies the price that investors are prepared to pay to buy an asset or sell an asset for, including financial instruments such as bonds and shares. The value of financial security is a function of three variables' (Petty et al., 2009: p328). List and describe the three variables used to determine the intrinsic value of a financial security.