p

PART A: TIME VALUE OF MONEY CALCULATIONS QUESTION 1 You have recently completed your tertiary education which was funded via a study loan from XYZ. You received a letter from XYZ stating that you are required to make monthly (end-of- month) payments to repay the said study loan as per the schedule below. Year(s) 1 to 3 4 to 6 7 to 10 Monthly Repayment RM400 RM750 RM1,000 Suppose that you have a very generous uncle who has agreed to help you pay off your study loan. This rich uncle of yours has suggested that you write to XYZ informing them that you would like to make a single lump sum payment to settle the study loan. Required: i. Based on the above stated monthly repayment schedule, and assuming that XYZ does not impose any interest or service charges (that is, the study loan is interest free), what is the total amount of the study loan to be repaid over the 10 years (the loan principal amount)? Given your knowledge of the concept of time value of money (TVM), that is, taking into account the opportunity cost of funds, for example, should the single lump sum payment suggested by your uncle be higher, lower or equal to the loan principal amount identified in part (i)? Why? For the purpose of the TVM calculations in part (iv), choose an appropriate discount rate and justify your choice. You need to be specific and detailed in this justification. Calculate the single lump sum settlement payment that you will propose to XYZ, based on your choice of discount rate. Assume monthly compounding. (2 +3 +3 + 7 marks = 15 marks)