You decided to apply what you have learnt in finance subjects into your real life with the following :

(i) Investment 1: Putting your current saving into an investment fund to accumulate $150,000 in 10 years from now. The average rate of return provided by this investment is 11 % per year, compounding weekly.

(ii) Investment 2: Borrowed an amount of money from a bank to buy a three bedroom house. You use one bedoom and rent out two bedrooms for extra-income that would enable you to pay off your mortage gradually.

Required:

a) Compute the effective annual interest rate (EAR) you would actually get in Investment 1. (1 mark)

ANSWER:

b) Calculate the initial investment you need to put in Investment 1 to get$150,000 in 10 years.

(2 marks)

ANSWER:

c) In Investment 1, if your initial investment is $50,000 and you would like to accumulate exactly $200,000 , how long does it take you to get the saving target? (2 marks)

ANSWER:

d) In Investment 2, calculate the mortgage value you get from the bank if your minimum monthly repayment is $800, the mortgage interest rate is 2.5% per year, monthly compounding and the standard time of 30 years is applied to your mortgage. (3 marks)

ANSWER:

e) In Investment 2, you put the rent you earn from two bedrooms in another account at the beginning of each week, which earn an interest rate of 2% per year, conpounding weekly. If you set the target of saving $100,000 to pay off part of your the mortage by the rent in 5 years, how much is the weekly rent for each room you need to charge? (3 marks)