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Question 3 (10 marks) 3.1 of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments

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Question 3 (10 marks) 3.1 of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero. a. Investment A pays R250 at the end of every year for the next 10 years (a total of 10 payments). b. Investment B pays R125 at the end of every 6-month period for the next 10 years (a total of 20 payments). Investment C pays R125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments). d. Investment D pays R2,500 at the end of 10 years (just one payment). Investment E pays R250 at the beginning of every year for the next 10 years (a total of 10 payments) (2) Which of the following bank accounts has the lowest effective annual return? c. e. 3.2 Page 2 of 4 a. b. C d. e. 3.3 b. C. An account that pays 8% nominal interest with daily (365-day) compounding An account that pays 8% nominal interest with monthly compounding. An account that pays 8% nominal interest with annual compounding. An account that pays 7% nominal interest with daily (365-day) compounding An account that pays 7% nominal interest with monthly compounding (2) Your business has just taken out a 1-year instalment loan for R72,500 at a nominal rate of 11.0% but with equal end-of-month payments. What percentage of the 2nd monthly payment will go toward the repayment of principal? a. 73.67% 77.55% 81.63% d. 85.93% e. 90.45% (2) 3.4 You wish to purchase an asset for R200 000. The finance company requires a 20% deposit. The financed portion is to be repaid, monthly, over 5 years at an annual interest rate of 24% compounded monthly 3.4.1 If payments are to be suspended for the 2nd year of the loan, and then trebled after that, determine the initial (first) payment to repay the loan in 5 years. (2) 3.4.2 If payments are set to grow by 1% a month from the 2nd month, what would your initial (first) payment be to repay the loan in 5 years? (2)

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