Read the following context;

Ms. Helen is working hard every day. She has been saving every month for 5 years an amount per month that represents a total sum of $52,500. Now she is planning her future, but she is still deciding what to do. When she started working, she didnt have a specific plan, but she has always dreamed of having a house in the valley.

Question 1

With her current savings, Ms. Helen is planning to buy the house within the next 9 years. Considering that its market price will rise up to $140,000, and the current market rates are around an annual 8%, calculate each of the following investment options and explain which is more attractive based on those calculations. Please show your workings for each option.

QS 1 SOLVED

1. Investing all her savings in a product that offers an annual 13% simple interest for 9 years.

SOLVED

2. Investing part of her savings in a product that offers an annual interest of 12% compounded quarterly for 9 years to produce $140,000.

SOLVED

3. Investing all her current savings in a project that will produce annual cashflows of $15,600 for 9 years.

SOLVED

Best option: SOLVED

Question 2

After her previous considerations Mr. Helen was thinking about an alternative plan, to make the most of her savings, and try to afford to buy a bigger property in the future. She was offered to join some different projects. The current interest rate is 0,5%, but as it is expected to grow in the future, she is very concerned, not only about the cashflows these projects will produce, but also about getting her investment back as fast as possible so that she can invest this money in another place.

Calculate each of the following scenarios and then explain which of them is most interesting and why. Please show your workings for each option.

1. Investing $50,000 in a project that will produce cashflows of $5,200 per quarter for 9 years.

2. Investing $40,000 in a project that will produce cashflows of $1,700 per month for 9 years.

3. Investing $30,000 in a project that will produce cashflows of $18,000 per year for 9 years.

Best option: