Question Four: (40 Marks)

Suppose you just took a $10 000, five year loan. Payments at the end of each year are flat (equal in every year) at an interest rate of 15 percent.

Required:

Develop an excel spreadsheet to calculate the appropriate loan table, showing the breakdown in each year between principal and interest. (10 marks)

Suppose you have just turned 35, and you intend to start saving for your retirement. Once you retire in 30 years (when you turn 65), you would like to have an income of $100 000 per year for the next 20 years. Assume the following;

• All savings draw compound interest of 10% per year.

• You make the first payment today and the last payment on the day you turn 64 (30 payments).

• You make the first withdrawal when you turn 65 and the last withdrawal when you turn 84 (20 payments).

Required:

1. Develop an excel spread sheet to calculate how much you would have to save between now and age 65 in order to finance your retirement income. (20 marks)

2. Explain any five any attributes of a good financial model. (10marks)