Practical Question Practice

These questions are computations and requires data which is attached below. Along with the accuracy you should show working as well.

Data- Table

1 Value of stolen gold $14,400,000 In 1550

2 10-year government bond rate 1.6% Pa

3 Mortgage interest rate 3.6% Pa

4 British empire equivalent return 4.8% Pa

5 credit card interest rate 11.3% Pa

6 Savings account interest rate 0.7% Pa

7 Term deposit interest rate 2.2% Pa

8 W. Buntings credit card debt $12,700.00

9 Bravo LTD. current share price $8.40

10 Bravo LTD. Share price in 2 years $12.67 FV

11 Bravo LTD. Share price dividend $0.33 Pa

12 Ace Debenture Face value $1,100.00

13 Ace Debenture Coupon Payment $22.55 Semi Annual

14 Charlie Hebros saving target $1,100.00

15 Market yield on debentures 6.6%

16 Current market price of Ace debentures $990.49

Question 1

It is said that the entire financial fortune of the British Empire can be computed using the compound rate of interest shown in the data table in row 4 applied to the gold that the English stole from the Spanish in the sixteenth century. If this was the case and by the year 1550 the English had stolen the amount shown in row 1 of the data table, what would the value of the British Empire have been at its peak in 1950 assuming compounding based on annual stops?

Question 2

Charlie Hebro intends to save for a house by making monthly deposits into a term savings account that earns interest at the rate shown in row 7 of the data table, with interest compounded monthly. His budget allows him to save the monthly amount shown in row 14 of the data table starting at the end of this month.

a)What will his savings be if he follows his plan for 5 years?

b)If he receives an unexpected inheritance of $50,000 today which he deposits to start off his home savings, what will his total savings be at the end of the five years.

Question 3

William Bunting has credit card debt shown in row 8 of the data table. He is considering increasing his home mortgage loan to pay it off. The credit card and home mortgage interest rates are shown in rows 5 and 3 respectively of the data table. Both loan types are computed on monthly stops. He is intending to increase his home mortgage payments so as to amortise the credit card debt over five years.

a)How much would his monthly repayments to the credit card company be if he intended to pay out the debt over five years?

b)By how much will his mortgage payments increase if he adopts this plan to deal with his credit card debt?

c)How much would he save by transferring his credit card debt to his mortgage?

Question 4

Shares in Bravo Ltd. Are currently trading at a price shown in row 9 of the data table. Their expected price in exactly two years times is shown in row 10.

a)What is the return on Bravo shares assuming they pay no dividend?

b)What is the return on Bravo shares assuming they pay an annual dividend equal to what is shown in row 11 of the data table?

Question 5

Ace Corp. is offering five-year debentures with a face value as shown in row 12 of the data table. The debentures will also pay a semi-annual coupon equal to row 13 of the data table.

c)What would you expect to pay for an Ace debenture if the market was expecting a total yield as shown in row 15 of the data table?

d)What would the yield on the debentures be if they could be purchased for the price shown in row 16 of the data table?