..Through explanation please
Questions 1 8. 2 are to be done using Excel - Total Payment; Interest Payment and Principal Payment are to be calculated using the financial functions in excels. Grades will assigned based on the use ofthese formulas Question 1 Michael Brooks is buying a house for $2 000 000. He made an agreement with the National Housing Trust (NHT) to provide 45% financing for his new home. It was agreed with the NHT that he will make monthly payments over five [5) years at 12% per annum. The remainder of the funds required to cover the cost of the house will be borrowed from his commercial bank. The terms of the agreement for the bank loan are, 25% down payment, and the balance is to be repaid at 20% interest over a three [3) year period. a. Calculate the monthly payments to be paid over to the National Housing Trust (NHT) if payments are made at the end of each month. [5 marks] b. Calculate the annual end of year payments to be paid to the commercial bank. [6 marks] c. Considering part (b), prepare the amortization schedule for this loan. [9 marks] (CCCJ) Question 2 Carona has just taken a loan at an annual rate of15%. She plans to repay it over 2 years, paying $52 250 at the beginning of each monthly. a. How much did Carona borrow?I [5 marks] b. Prepare the loan amortization schedule [12 marks] 0. If payments are made at the end of each month, what is the effective annual rate of the loan? [3 marks] Question 3 The Plush Corporation is planning on expanding its operations and decides to fund this by issuing a new series of bonds on January 1, 2020. The 10% coupon bonds will be sold at par ($1 200), and will mature on December 31, 2044. Coupon payments are made semi-annually. a. What will be the YTM of Plush's bonds on January 1, 2020? [2 marks] b. What will be the price of the bond on January 1, 2027, given interest rates is expected to fall to 7 T J L 8%? [5 marks] c. Find the expected current yield and expected capital gains yield on the bond on January 1. 2027, given the price as determined in Part 'b' above [6 marks] d. If Plush Corporation bonds are expected to be sold for $1 100 on July 1, 2037, what is the expected rate of return on that date? [6 marks] e. What would be expected current yield and expected capital gains yield on July 1, 2037? [6 marks] f. Would you buy Plush bonds when they are selling for $1 100 if you require a rate of return of 13% per year. (Show calculations to support your answer) [10 marks] Question 1 - 50 marks Consider an exchange economy with three agents, Ann, Bob and Charlie and 2 goods, meat and salad. The preferences of the three individuals can be characterised as follows: (i) Ann always demands equal quantities of both goods, (ii) Bob spends two thirds of his income on salad and the rest on meat, (iii) Charlie never consumes meat. Normalise the price of meat to one and use p to denote the price of salad. a) Consider the indifference curves presented in Figure 1. Which indifference curves reflect the preferences of Ann? Which one those of Bob? Which graph represents the indifference curves of Charlie? Figure 1: Indifference Curves [6 marks] indifference Comm Tangency pairs between budget and indifference comes ate at the Different Budget Meet (A) (B) Meat Ment (C) (D) continues on next page . ...1 Which of the following is NOT an approach to forecasting? A time series analysis B seeking an expert's opinion C Delphi technique zero-based approach [2] .2 Which of the following is NOT an advantage of top-down budgets compared to bottom-up budgets? A Junior managers are likely to be more motivated by a target set by senior management. B They enhance co-ordination and consistency between departments. C They may shorten the time taken to produce the budgets. D They can more easily incorporate strategic plans. [2] .3 Which of the following best describes a zero-based budgeting approach? A an approach that attempts to get all overhead costs down to zero B an approach where the budgeted revenues less costs for each business unit is set equal to zero C an approach where each activity is re-evaluated each time a budget is produced D an approach that leads to zero variances between actual results and flexed budgets [2] .4 Compare statistical approaches to forecasting with intuitive approaches such as the Delphi technique. [5]An actuary has, for three years, recorded the volume of unsolicited advertising that he receives. He believes that the number of items that he receives follows a Poisson distribution with a mean which varies according to which quarter of the year it is. He has recorded Y, the number of items received in the / th quarter of the / th year ( / = 1,2,3,4 and ) =1,2,3 ). The actuary wishes to estimate the number of items that he will receive in the first quarter of year four. He has recorded the following data: Y1 Y12 Y13 i= 1 98 117 124 113 362 i =2 82 102 95 93 206 i= 3 75 83 88 82 86 i =4 132 152 148 144 224 (i) Estimate Ya the number of items that the actuary expects to receive in the first quarter of year four using the assumptions of EBCT Model 1. [5] The actuary believes that, in fact, the volume of items has been increasing at the rate of 10% per annum. (ii) Suggest how the approach in (i) can be adjusted to produce a revised estimate taking this growth into account. [2] (iii) Calculate the maximum likelihood estimate of Y1,4 (based on the quarter one data already observed and the 10% po increase described above). [5] (iv) Compare the assumptions underlying the approach in (i) and (ii) with those underlying the approach in (iii). [2] [Total 14]
