6 You are looking to invest in Italian sculpture and have identified a valuable piece that is currently selling for $29 000. Your expectations that the sculpture should be held for 1 year before selling. Based on your analysis you consider that the sale prices and likelihood that these prices will be realised in 1 year are as follows; 10% chance that the sale price will be $36 000, 30% chance that the sale price will be $32 500, 30% chance that the sale price will be $30 500, 30% chance that the sale price will be $28 000.

Required:

The return that you expect from the investment will be:

8.62%

11.34%

6.55%

7.96%

7 Tolden Trading has borrowed from MacBank to invest in a project. The loan requires a repayment of $17,384 at the end of every month for three years. The lender quoted Tolden Trading a rate of 8.40 per cent with monthly compounding.

Required:

Assuming the MacBank figures are correct;

(1) What is the approximate amount of the loan taken out by Tolden Trading?

(2) What is the approximate overall effective annual rate on the loan if Tolden Trading also was required to pay an initial fee to the mortgage broker who introduced the business to the financier. The fee was payable on establishment of the loan and was an amount equal to 6% of the sum of the first 2 loan repayments.

(1) $551 501, (2) 9.01%

(1) $625 824, (2) 8.66%

(1) $551 501, (2) 8.66%

(1) $44 479, (2) 8.79%

(1) $625 824, (2) 8.95%

(1) $195 607, (2) 9.12%

8 Galgan Trading is a fast-growing telecommunications agency. Currently, their sales are at $700,000. They expect their sales to grow at an annual compound rate of 35% in the next two years, followed by an annual compound rate of 25% in years 3 through 7. Finally, their growth rate would slow down to a compound growth rate of 10% in years 8-10.

Required:

What will be the approximate sales amount for Galgan Trading as of year 10?

$5,181,956

$2,843,323

$3,893,280

$1,698,023

9

Roland Trin received a graduation present of $20 000 that he is planning on investing in an investment fund, ABC Special Situations Fund, which earns 6% p.a. before fees, compounded every 2 months for a period of 3 years. The fund charges a fee of $100 at the end of each year for management which is subtracted from the fund balance at the time.

In addition to the graduation present, Roland wants to deposit a 6-monthly amount into a high interest cash account with Platinum Securities commencing 1 year from today for 4 payments in total. The account with Platinum Securities has a nominal interest rate of 8% and is compounded half-yearly for a 2-year term. At the end of the investment term there is a fee charged of $150 which is subtracted from the closing account balance.

Roland is looking to buy a car with the total proceeds from the 2 investments with ABC Special Situations Fund and Platinum Securities after 3 years. The car costs $49 000 before additional sales taxes equal to 6% of the purchase price.

Required:

1. How much must Roland deposit each year into Platinum Securities to be successful with his car purchase?
2. What will be the net amount that will come from ABC Special Situations Fund after 3 years to assist with the car purchase

(1) $6 450.14, (2) $28 458.88

(1) $6 708.14, (2) $23 303.11

(1) $6 708.14, (2) $23 604.12

(1) $6 450.14, (2) $23 604.12

(1) $6 416.17, (2) $28 485.88

(1) $6 672.82, (2) $21 233.35