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i need help on my assignment please, it is a finance assignment, i have attached the questions

BUSI 2503




FALL 2016


ASSIGNMENT Instructions:










? This is a group assignment; Only one assignment should be submitted by your group.


The cover page should contain the names and student number of each group member


Answer all questions


The assignment is due by Monday 10 October 2016. You will lose 5 marks for everyday


the assignment is late.


Assignment should be submitted on Culearn (into the Assignment dropbox) Question 1


a) You have just joined the investment banking firm of Mckenzie & Co. They have offered


you two different salary arrangements. You can have $75,000 per year for the next two


years, or you can have $55,000 per year for the next two years, along with a $30,000


signing bonus today. If the interest rate is 12% compounded monthly, which is a better




(18 marks)


b) In 30 years, you plan to set up a fellowship fund for Carleton university that pays out


$100,000/year in perpetuity with an annually compounded discount rate of 5%. In order to


set up the fund in 30 years, how much do you need to save each year (starting this year)


assuming you can get a semi-annually compounded return of 10% per annum on your


savings for the next 30 years?


(10 marks) Question 2


Assume you are 35 years old today and are considering your retirement needs. You


expect to retire at age 65 (in 30 years) and you plan to live to 99. You want to buy a


house costing $300,000 on your 65th birthday and your living expenses will be $30,000 a


year after that (starting at the end of year 65 and continuing through the end of year 99,


35 years), assume an annual interest rate of 8%, annual compounding:


? How much will you need to have saved by your retirement date to be able to afford


this course of action?


? Alternatively, suppose you already have $50,000 in savings today. If you can invest


money at 8% a year, how much would you need to save at the end of each year for


the next 30 years to be able to afford this retirement plan?


(12 marks) Question 3


You have been hired to run a pension fund for Mackay Inc, a small manufacturing firm.


The firm currently has Gh¢5 million in the fund and expects to have cash inflows of $2


million a year for the first 5 years followed by cash outflows of $ 3 million a year for the


next 5 years. Assume that interest rates are at 8%.


a. How much money will be left in the fund at the end of the tenth year?


b. If you were required to pay a perpetuity after the tenth year (starting in year 11 and


going through infinity) out of the balance left in the pension fund, how much could you


afford to pay?


(15 marks) Question 4


You bought a house a year ago for $250,000, borrowing $200,000 at 12% annual, with


semi-annual compounding, on a 25-year loan. Interest rates have since come down to 9%.


You can refinance your mortgage at this new rate.


? How much are your monthly payments on your current loan (at 12%)?


? How would your monthly payments change if you could refinance your mortgage at


9% (with a 24-year term loan)?


? Suppose you kept your monthly payments at the original amount found above at


12%, but refinanced at 9%, how long would it take you to pay off your mortgage?


(15 marks) Question 5


Suppose your parents wish to buy a house whose current market value is $150,000. They


have approached a loan officer at the Bank of Nova Scotia who offers them 25-year


mortgage financing for 75% of the purchase price at a rate of 6.75%. Payments are to be


made on a monthly basis even though the bank is required by Canadian laws to


compound the interest semi-annually.


(a) What are the effective annual and monthly rates of interest on the loan?


(b) Assuming the loan payments are due at the end of each month:




determine the size of the monthly loan payments




determine the amortization schedule for the first 3 months




determine the principal outstanding at the end of the 5th year.


(30 marks)


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