Podcast
Questions and Answers
What is the future value of an investment of €15,000 at the end of each year for 6 years at an annual interest rate of 5%?
What is the future value of an investment of €15,000 at the end of each year for 6 years at an annual interest rate of 5%?
If the monthly interest rate is 0.4%, the total amount to be repaid for a €500,000 loan over 20 years will be less than double the borrowed amount.
If the monthly interest rate is 0.4%, the total amount to be repaid for a €500,000 loan over 20 years will be less than double the borrowed amount.
True
What is the total cost of the oil pipeline installation?
What is the total cost of the oil pipeline installation?
£19,000,000
The present value of a future income stream can be calculated using the __________ formula.
The present value of a future income stream can be calculated using the __________ formula.
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Match each investor with their main action regarding consumption:
Match each investor with their main action regarding consumption:
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How much will be saved per year during the first five years of operation of the pipeline?
How much will be saved per year during the first five years of operation of the pipeline?
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A down payment of 20% on a $2 million house would be $400,000.
A down payment of 20% on a $2 million house would be $400,000.
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What is the annual interest rate on the mortgage for the house purchased in Sydney?
What is the annual interest rate on the mortgage for the house purchased in Sydney?
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Study Notes
Exam Revision
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Investment Stream (Question 1):
- Invest €15,000 annually for 6 years.
- Annual interest rate 5%.
- Calculate present and future value.
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House Loan (Question 2):
- Borrow €500,000 for a 20-year house loan.
- Monthly repayments required.
- Monthly interest rate 0.4%.
- Calculate monthly repayment.
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Oil Pipeline Investment (Question 3):
- Oil pipeline installation cost £19,000,000.
- Installation takes 2.5 years.
- Half the cost paid at the end of each year.
- Annual savings: 3,000,000(first5years),3,000,000 (first 5 years), 3,000,000(first5years),2,000,000 (next 5 years), zero thereafter.
- Annual interest rate 5%.
- Decide if the company should invest. Justify.
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Planned Savings (Question 4):
- Save £25,000 annually for 8 years.
- Annual interest rate 3%.
- Calculate the present value of the savings.
- Calculate the balance at the end of the 8-year period.
Investment Decisions (Exercise 2)
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Two-Period Consumption Model:
- Model considers now (t=0) and next year (t=1).
- Two investors: A (patient) and B (impatient).
- Investor A wants to maximize consumption at t=1.
- Investor B wants to maximize consumption now.
- Annual income of $200,000 today and zero income at t=1.
- Real investment opportunity: Cost 200,000now,returns200,000 now, returns 200,000now,returns215,000 at t=1.
- Risk-free borrowing and lending at 10%.
- Analyze investment decisions, cash flows, and consumption for each investor (real and financial).
- Discuss net present value (NPV) optimality.
House Mortgage (Exercise 3)
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Sydney House Purchase:
- House price $2,000,000.
- 20% down payment.
- 25-year mortgage financed remainder.
- Monthly payments.
- Annual interest rate 6% (monthly compounding).
- Calculate loan principal repaid in the first year (percentage of total annual payment).
- Determine if the percentage increases, decreases, or remains constant over subsequent years. Explain.
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Description
This quiz covers various investment scenarios including annual saving plans, loan calculations, and the feasibility of large-scale investments like an oil pipeline. You will engage with practical financial questions to test your understanding of present and future value, as well as loan repayment strategies.
