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FINM2401 Financial Management, Semester 2 2016

I'm not sure with my payment for each option in my assignment. i would like to know how i calculate each financial option's payment, i would like to get those figure if it is possible thank you

FINM2401 Financial Management, Semester 2 2016 FINM2401 Financial Management, Semester 2 2016 Team Project Assignment due: 11:59pm on 9th October 2016. Submit electronically on Blackboard ? one assignment per group. Group: This is a group assignment. Your group should contain 3-4 students. Facts: You have just secured your first job since you graduated from UQ Business School 3 months ago. The housing market is pretty good and you decide to jump in now. Since you are a fresh graduate, you do not want to spend too much on your first property. You have you eyes on a one-bedroom apartment in Brisbane, priced approximately $475,000. Your training at UQBS has prepared you well for life after graduation and you are going to use your knowledge from FINM2401 Financial Management to assess different finance options as shown in below: Fixed-rate Mortgage Option: ABC Bank offers a mortgage with a down payment of $95,000 (paid on the day of purchase of the apartment) and the balance is financed by a 5% p.a. fixed interest (compounded monthly) home loan with a term of 30 years with monthly payments (first payment paid one month after you buy your apartment). This offer includes $3,000 in loan set up fees that must be paid in cash on the date of purchase. Floating-rate Mortgage Option: ABC Bank offers a mortgage with a down payment of $100,000 (paid on the day of purchase of the apartment) and the balance financed by a 4.5% p.a. fixed interest (compounded quarterly) mortgage with a term of 20 years with quarterly payments (first payment is paid on the day of purchase of the apartment). Unfortunately, this fixed interest rate will last only two years and then the rate will be variable for the remainder of the mortgage. ABC Bank estimates that the variable rate will be 5.5% p.a. (compounded quarterly) at the beginning of year 3. For the purpose of your calculation this variable rate is assumed to remain constant over the remaining life of the mortgage. Application fees for this loan are $2,000, which must be paid in cash on the date of purchase. Interest Only Option: ABC Bank also offers you an interest only option. This option might be interesting as you just got your first job and you do not want to spend most of your income on repaying the mortgage. You will be paying only interest for the first five years, after that you will be paying interest and the principle for the remaining 25 years. You would make monthly payments over the full life of the loan. A down payment of $95,000 is to be paid on the day of purchase and the interest rate is fixed at 5% p.a. (compounded monthly). 1 FINM2401 Financial Management, Semester 2 2016 Off-the-Plan Option: A real-estate agent told you that as a first-time home owner, you will be eligible to receive a first home owner?s grant of $20,000 if you buy a brand new apartment. Luckily, you have found a development project offering new apartment that is almost the same as the second-hand one that you were considering to buy and also priced at $475,000. However, this new property is currently selling as ?off-the-plan? (?off the plan? simply means a property that hasn?t been built yet). It will be exactly 2 years before your apartment settles. For an off the plan purchase, you will be paying 10% deposit when you sign the contract with a developer (you will sign it today) and the remaining balance will due on the settlement date. Your 10% deposit with the developer will be earning an interest at 4% p.a. (compounded monthly). Let?s assume on the settlement date, you decide to pay another 10% of the purchase price. The $20,000 grant will be credited to your saving account on the settlement date (for easy calculation purposes) and you will use it to payoff your mortgage. The remaining balance will be financed by the mortgage, where the first repayment happens one month after the settlement date. The application fee for this loan is $3,000 in cash on the settlement date. You will take out a 30-year mortgage paying a fixed at 5% p.a. (compounded monthly). Meanwhile, you will be renting a unit before your apartment is settled. The monthly expense for renting is $900 (due at the beginning of every month, beginning today). Borrowing and Lending Rate: To facilitate your analysis, assume that your bank allows you to lend (and borrow) at a rate of 4% p.a., compounded daily. Required: 1. Calculate a) the monthly payment on Fixed-rate Mortgage Option loan, b) both sets of quarterly payments on Floating-rate Option, c) both sets of monthly payments on Interest Only Option and d) the monthly payment on the mortgage should you decide to purchase off-the-plan. 2. Prepare excel worksheets with the complete payment schedules for all four financing deals. The payment schedules should show the amount and timing of all payments. Graph the Interest and Principal amounts out of the payments across time, in each case. (Hint: use separate excel sheet for each option) 3. a) Rank these financing options in order of attractiveness using the TWO valuation methods: (1) Internal Rate of Return (IRR), and (2) Net Present Value (NPV). (Hint: Think about handling interest rates with different compounding frequency, fees, and down payments). b) Imagine your investment account now pays 7% p.a., 5% p.a., 3% p.a., or 0% p.a. (all compounded daily). Provide the rankings in each of the scenarios accordingly. 2 FINM2401 Financial Management, Semester 2 2016 4. Prepare a typed summary, discuss the following: a) Based on your ranking of the four alternatives in Part 3(a), discuss the most viable financial arrangement for you. Be sure to draw upon the financial knowledge you have learnt so far in this course when making your decision. NOTE: Your ranking should include a discussion of the valuation methods. You should also explain why you chose a particular method. The discussion should not be more than 400 words. b) Compare to your decision in Part 3(a), does your final decision change with different interest rates in 3(b)? Discuss briefly why or why not your final decision will change. The discussion should not be more than 200 words. Mark Allocation: Part 1 Part 2 Part 3 Part 4 Total Payment under Fixed Rate Mortgage Option Payment under Floating Rate Mortgage Option Payment under Interest Only Option Payment under Off-the-Plan Option Payment schedule and Graphs for Fixed Rate Mortgage Option Payment schedule and Graphs for Floating Rate Mortgage Option Payment schedule and Graphs for Interest Only Option Payment schedule and Graphs for Off-the-Plan Option Ranking Computation using NPV and IRR Ranking under different scenarios using NPV and IRR Discussion Presentation 5 10 10 10 5 10 10 10 20 20 35 5 150 Additional Notes: ? ? Your Excel file should include all workings, calculations, schedules of payments, and graphs. Formulas for the calculations should have cell references wherever possible. If you have computed a number incorrectly and just typed that number into the spreadsheet (or typed a formula using numbers when cell references could have been used), you will not receive partial credit for any portion of you computation that is correct. The Word limit is firm. Only the first 400 words for Q4(a) and 200 words for Q4(b) in your written response will be read. Marks will not be awarded after the word limit threshold, even if you provide the correct answer. 3 FINM2401 Financial Management, Semester 2 2016 ? NOTE: You must list the actual word count on your pdf file. If not, 1 points in your Presentation allocated marks will be deducted. Final Submission: Teams should submit their entire assignment (ONE SUBMISSION PER TEAM) by attaching TWO files: ? an Excel file containing the answers for Part 1, 2, and 3 on BLACKBOARD TEAM PROJECT (Name the file ?Assignment_FINM2401_TeamXXX.xlsx? where xxx is your team?s number); and ? a pdf with the answer to Part 4 on TURNITIN TEAM PROJECT (Name the file ?Assignment_FINM2401_TeamXXX.pdf?). NOTE: ? Please make sure that only ONE member of your team submits through Turnitin. If ?


? more than one team member submits the answer, Turnitin will treat it as plagiarism. You have a maximum 5 attempts on submission, but only your last submission will be graded. Each team member needs to submit the Peers Evaluation Form to get the assignment score. 4


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