Question 1

Answer the following questions which are based on the principles of Time Value for money:

a) A business person invests M10, 000. During the first year the investment earned 20% for the year. During the second year, she earned only 4% for that year. How much is her original deposit worth at the end of the two years?

[4 marks]

b) How much do you have to deposit today in a bank account paying interest compounded quarterly:

I. if you wish to have M15,000 at the end of 3 months, if the bank pays 5.0% APR?

II. if you wish to have M50,000 at the end of 24months, if the bank pays 8.0% APR?

III. if you wish to have M6,000 at the end of 12 months, if the bank pays 9.0% APR? [12 marks]

c) What rate of interest [APR] is the bank charging you if you borrow M77, 650 and have to repay M80, 000 at the end of 2 quarters, if interest is compounded quarterly?

[4 marks]

d) Suppose you make an investment of M1,000. This first year the investment returns 12%, the second year it returns 6%, and the third year in returns 8%. How much would this investment be worth, assuming no withdrawals are made?

[5 marks]