Corbin is 25 years old today and he wishes to accumulate enough money over the next 35 years to provide for a 20 years retirement annuity of RM100,000 at the end of each year starting on his 60th birthday. Calculate amount that he need to save at the end of each year if the required rate of return is 10 percent.(6 marks)

(c)Cosmos Travel wishes to replace its luxury bus in 10 years by accumulatingfunds in a special account. The new bus is expected to cost RM180,000.Compute amount Cosmos should put into the fund in equal end of year ifearnings are expected to be 8 percent per year.(4 marks)

Question 4

(a)Maziah is buying an educational insurance policy for her son, Muhammad.Maziah will pay RM2,400 per year for 10 years. If the interest rate is 7 percent,compute the amount of money Muhammad will have when the policymatures?(4 marks)

(b)Zarith is planning to start business 5 years from today, the capital required isRM50,000. If the interest rate is 10 percent, calculate amount Zarith shouldsave every year so that he will have enough funds to start his business. (5 marks)

(c)Johan borrowed RM50,000 to be repaid over 10 years. If the interest chargedby bank is 14 percent. Calculate the annual loan payment. (6 marks)

(d)Imran plan to deposit RM50,000 in Juwara Saving Account atCom Bank.The account provides you 6 percent returns. Compute the amount of moneythat Imran will has in his account after 6 years.(5 marks)

3/4

Question 5

(a)Rania plans to visit her friends in Japan 4 years from now. She needs a totalof RM30,000 at that time. Calculate the amount she need to deposit today inan investment with earning 12 percent annually in order for her to accumulateRM30,000 at the end of year four.(5 marks)

(b) Amir 25 year old college graduate wishes to retire at age 65. In order tosupplement other sources of retirement income, he can deposit RM2,000 each year into Employees Provident Fund (EPF). His investment in EPF will earn a 8 percent return over the next 40 years. If Amir makes annual end-ofyear RM2,000 deposit into the EPF, compute the amounthe will accumulate by the end of his sixty-fifth year.(5 marks)

(c) Adha would like to accumulate RM20,000 over the next 5 years. How much he must deposit at the end of each year, given 6 percent interest rate.(5 marks)

Question 6

.(a)A firm offers term of 1/10, net 35. Compute effective annual rate does the firm earn when customers do not take the discount. Explain what will happen to this effective rate if:

i. Discount is changed to 2 percent(3 marks)

ii. Credit period is increased to 60 days(3 marks)

iii. Discount period is increased to 15 days.(3 marks)

(b) A building contractor needs to borrow RM500,000 for 12 months. He is considering a loan from two banks. United Overseas Bank offers a simple interest loan of 11 percent with a required compensating balance of 15 percent. Southern Bank offers a discount interest rate of 12 percent with 10 percent compensating balance.

(6 marks)

4/4

Question 7

Etika Express Berhad is seeking loan for a period of one year for its intended purchase ofnew bus. The bus will cost RM250,000 of which only 80 percent financing is required. Etika Express Berhad is considering two alternatives of loan.

A loan from Agro bank where the bank offer 6 percent simpleinterest and 10 percent compensating balance.A loan from Ambank with 6 percent discount interest and 10percent compensating balance.

You are required to:

i.Calculate the Effective Annual Rate (EAR) of the two alternatives

of loan.(8 marks)

ii.Which alternative that Etika Express Berhad should choose and

state your reason.(2 marks)

Question 8

Lahore Pazzkistan Manufacturing has three possible suppliers, each offering different credit terms. Except for the differences incredit terms, their products and services are virtually identical. The credit terms offered by each supplier are shown in the following table;

Supplier Credit Term Q 2/10, net 30 R 3/10, net 45 S 4/10, net 50

Calculate the nominal cost (cost of not taking cash discount) for all suppliers.(5 marks)