BCO126 MATHEMATICS OF FINANCE Timed exercise 2 – Task brief & rubrics

Task

General instructions:

1. Save this document in your computer and name it: EXERCISE2_xxxxxxx (where xxxxxxx is your last name)

2. Under each question you must write:

· The formula you used

· The method you used to obtain the result

· The result

· The meaning of the result obtained

3. Upload your saved word document to the Moodle link called “Timed Exercise 2 Submission point”. No late submissions will be allowed.

Details of the task:

· This assignment must be performed individually

· Structure: 5 questions (20% weighting each)

· All questions must include workings, not just the final number.

Task content:

Question 1

After retirement, you would like to have $16,000 income each year, for at least 30 years. How much should you have saved in your retirement account to receive this income if the annual interest rate is 6 percent per year? (Assume that the payments start one year after your retirement)

(20%)

Question 2

A real estate property can be rented for 19000€ per year. We assume that it can last for many decades, with growing maintenance costs of 0,75% per year. For how much would you value it today if you want to obtain at least a profitability of 7% ?

(20%)

Question 3

A friend has taken a $170,000 mortgage out on his house at an interest rate of 6 percent per year. If the mortgage calls for equal payments per semester for 6 years, what is the amount of each payment?

(20%)

Question 4

If you start making $170 saving contributions per month, starting at the end of this month, and continue them for 11 years, what is the future amount of money that you will receive if the annual interest rate is 3%?

(20%)

Question 5

Calculate how much you should invest today in a project that will generate cash-flows of 12000€ per year, starting in 5 years, and during the following 15 years, if you want to get a profitability of 5%.

(20%)

Formalities:

· Word count: between 1000-1500 words

· Font: Arial 12,5 pts.

· Text alignment: Justified.

· The formulas and procedures to obtain the result must be included.

Submission: Week 9 – Via Moodle (Turnitin).

Weight: This task is a 15% of your total grade for this subject.

It assesses the following learning outcomes:

· to understand the perpetuity and annuity valuation and their factors – annual and periodical – and with various starting dates with and without growth

· to assess the future revenue generation of a regular savings scheme and the amount needed to be saved over time to meet a future series of payments