• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Calculation of Future Values Exam Question - Given the recent drop in mortgage interest rates, you have decided to refinance your home.

Extracts from this document...

Introduction

Q1. Given the recent drop in mortgage interest rates, you have decided to refinance your home. Exactly 4 years ago, you obtained a Rs. 275,000.00 15-year mortgage with a fixed of 11% APR, compounded monthly. Today, you can get a 15-year loan for the currently outstanding loan balance at 8% interest, compounded monthly. This loan, however, requires you to pay a Rs.250 appraisal fee and 3 points at the time of the refinancing (1 point equals 1% of the amount borrowed). Ignore tax considerations. If you refinance, how much will your new monthly payments be after you refinance? Answer - 1 Solution:- Borrowed Amount P.V.A (11%, 15yrs) (Refer P.V.A table) Now, we will ascertain the interest amount for 4 years a) So, 2, 75,000 - 38242 = 2,36,758 (11%, 15yrs) So, the monthly installment amount would be 3,186 2, 36,758 - 33,909 = 2, 02,849 (11%, 14yrs) 2, 02,849 - 30,051 = 1, 72,798 (11%, 13 yrs) 1, 72,798 - 26,617 = 1, 46,180 (11%, 12 yrs) Working of part 1 sums:- Appraisal Charges - 250/- (1) And 3% * 1, 46,180 = 4,386 (2) So, adding 1 & 2 we get 4,636 Again, by applying the formula we can find out per month instalments charges on 1, 46,180 Borrowed Amount P.V.A (8%, 15yrs) ...read more.

Middle

The banker's required return is 10% annually. How much will you owe on the car after 16 months? Answer - 4 Given, Present value of future annuity= Rs. 15,000 Interest= 0.0083 Time= 60 installments We have to find out the annuity. Solution:- Present value of F.A. = Annuity [1/i-1/i (1+i)n ] 15,000=Annuity [1/0.0083-1/0.0083 (1.0083)60] 15,000=Annuity (1/0.0083-1/0.01362) 15,000=Annuity (120.48-73.42) 15,000=Annuity (47.06) Annuity = 15,000/47.06 Annuity = Rs. 318.742 Q5. Brijesh, who recently sold his Scorpio, placed Rs16, 000.00 in a savings account paying annual compound interest of 7%. Calculate the amount of money that will have accrued if he leaves the money in the bank for 19 years. Answer - 5 Given, Present value of savings= Rs. 16,000 Rate of interest = 7% Time period = 19 years We need to find out the future value of the current savings. Solution:- Future value = present value (1+r/100)n = 16,000(1+7/100)n = 16,000(1.07)19 = 16,000(3.616) Therefore, the Future Value of the current savings = Rs. 57,864.44 Q6. You need to have Rs18, 000.00 in 5 years. If money is placed into a savings account paying annual compound interest of 2%, how much money must be deposited today in order to have the required amount? ...read more.

Conclusion

Answer - 2 Ramesh and Laxmi has to pay some extra amount if they wants to payoff in 15 years which is to be calculated using Net Factor of Annuity. Answer - 3 We find out that when we retire after 24 years we are left with a desired amount using the formula of future value of the savings and stock. Answer - 4 For calculating the amount left at the end of 16 mts we calculate it through annuity. Answer - 5 The amount of money that will have accrued if he leaves the money in the bank for 19 years by calculating it through Future Value. Answer - 6 Money that must be deposited today in order to have the required amount is to be calculated using Future Value. Answer - 7 The APY(Annual Percent Yeild) on this investment is to be calculated using its formula. Answer - 8 Interest rate per year must you earn in order to have the required amount through Future Value. Answer - 9 Years that will be needed before you have the required amount is to be calculated by Future Value. Answer - 10 Rate at which would be taken by Bank B advertise if they compound Quarterly will be calculated by Compound rate of interest. ?? ?? ?? ?? Financial Management 1 | Page ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. A2 Business CourseWork

    Tesco faced huge scrutiny and were nearly forced to sell its land bank division (this controls the land they own.) Products: What attracts customers to shop? The simple answer is the products.

  2. The maintenance of accurate records supplies the company with the financial data that assists ...

    The major difference is in the profit and loss account, the bottom section. In a sole trader P/L, after adding any income and deducting any expenses from the gross profit it will have a net profit figure. While the P/L of a limited company will have an appropriation section at the bottom, which will show the distribution of net profit.

  1. Business Development Plan

    employees don't have good communications skills and all staff are judged by the quality of there communication skills with other people. I will also need to ensue that all the employees that I chose work good in a group as well as individuals as someone it is better to work

  2. business plan unit

    Aims and objectives are goals that the company sets in order for it survive and to be successful. Aims are long term goals which the business hopes to achieve in 5 to 10 years time. Where as objectives are short to medium term targets which need to be reached in order to achieve the aim of the business.

  1. Financial Analysis: Home Depot

    However, there was not sufficient information to provide a valuation of the specific investment plan because the terms of the deal were not enclosed in the acquisition. Therefore, our group decided to provide a valuation of the entire firm of Home Depot.

  2. U.S. Subprime loan Issue

    to meet it coupled with the unwillingness on the part of legislators at the national level to recognize the inherent risks to consumers (wikipedia, 2008). In recent years, sub-prime lending had increased significantly due to several factors. Such as the housing downturn-housing bubble, carelessness of financial institutions and credit agency

  1. Autralia's Retail Loan Rate Changes

    (see Appendix 2). 2.1.2. Indicators of Monetary Policy RBA sets an operating target for the overnight cash rate, which is the interest rate on overnight loans made between institutions in the money market. The RBA Broad specifies the required target for the cash rate, which influences other interest rates in the economy (Kriesler, 1999).

  2. The company I'm reporting on is Kraft Foods Incorporated - accounting principles.

    Changes in Accounting Practices Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its related amendment, SFAS NO. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (collectively referred to as "SFAS No.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work