Exam Revision PDF

EXAM REVISION 1- You decide to invest €15,000 at the end of each year for the next 6 years. The annual interest rate is 5%. What will the present value and future value of this investment stream be? 2-You want to borrow €500,000 to buy a house. The loan has a 20-year term and requires monthly repa...

EXAM REVISION 1- You decide to invest €15,000 at the end of each year for the next 6 years. The annual interest rate is 5%. What will the present value and future value of this investment stream be? 2-You want to borrow €500,000 to buy a house. The loan has a 20-year term and requires monthly repayments. The monthly interest rate is 0.4%. Calculate the monthly repayment. 3- An oil pipeline will cost £19,000,000 to install. If installation starts today, it will be complete in two years and half of the cost must be paid at the end of each year of the installation process. Once installed, it will allow the oil company installing it to save $3,000,000 per year at the end of each of the first five years of operation, $2,000,000 per year in the next five years of operation and zero thereafter. The annual interest rate is 5%. Should the company invest in the pipeline? Justify your answer. 4- At the end of each of the next eight years, you plan to put £25,000 of your annual salary in the bank. If the annual interest rate is 3%, what is the present value of this planned savings stream? What will the balance in your bank account be at the end of the eight year period? Exercice2: (Previous Exam) Consider a two-period consumption model consisting of now, t = 0, and next year, t = 1. There are two investors, Investor A who is patient and wants to wait and consume the maximum amount possible at t = 1, and Investor B who is impatient and wants to consume the maximum amount possible now. Both investors have an income of $200,000 today and no income at t = 1. Both investors have access to a real investment opportunity costing $200,000 now and returning a guaranteed $215,000 at t = 1. They also have access to risk-free borrowing and lending at an annual rate of 10%. Explain the investment decisions taken by each investor (both real and financial) and the resultant cash flows and consumption, including a brief discussion of the optimality of the net present value (NPV) rule. Exercice 3: (exam) You have just purchased a house in Sydney for $2 million, using your own savings to make a down payment equal to 20% of the house’s value, with the remainder financed via a 25-year mortgage. The mortgage has fixed monthly payments, with the first payment due in exactly one month. The stated annual interest rate on the loan is 6% with monthly compounding. How much of the loan principal will you repay in the first year of the loan, expressed as a percentage of your total annual mortgage payment. Will this percentage increase, decrease, or stay the same in subsequent years? Explain.