Question 1

(a) 15 years from now, Mr. Trex would like to buy a house in that is worth RM800,000 at
that time. To accumulate this amount, Mr. Trex plan to invest an equal sum each year
in Investment A that will earn 8 percent interest compounded semi-annually with the
first payment made at the beginning of the year.

Required:

(i) calculate the amount Mr. Trex must deposit annually.

FV=PMT [(1+i/2)2n-1)/(i/2)] (1+i/2)

RM800,000= PV [(1+0.08/2)2x15-1)/ (0.08/2)] (1+0.08/2)
RM800,000= PV (2.2434/0.04)(1.04)
PV= RM800,000 /58.3283
PV= RM13,715.46

(ii) if Mr. Trex is being offered 8.16 percent compounded annually in Investment B,
advise Mr. Trex on whether Investment A or Investment B is a better choice.
Show your workings.

FV=PMT [(1+i)n-1)/(i)] (1+i)

RM800,000= PV [(1+0.0816)15-1)/ (0.0816)] (1+0.0816)
RM800,000= PV (2.2434/0.0816)(1.0816)
PV= RM800,000 /29.7360
PV= RM26,903.40

* Mr. Trex should invest in Investment A because the equal sum of investment is is
RM13,715.46 that are lower than Investment B RM26,903.40

(b) Ronald bought a house in Kota Kinabalu 15 years ago. To buy it, he took out a
RM400,000 loan for 30 years with monthly equal repayment at an annual rate of 6
percent.

Required:

(i) calculate Ronald’s monthly repayments.

PV= PMT [(1-(1+i/12)-mxn/(i/12)

RM400,000= PMT [(1-(1+0.06/12)-12*30/(0.06/12)
RM400,000= PMT (0.8340/0.005)
PMT= RM400,000/166.7916
PMT= RM2,398.20

(ii) calculate the outstanding balance of the loan after Ronald paid off his 180 th
monthly payment.

PV= PMT [(1-(1+i/12)-mxn/(i/12)

PV= RM2,398.20 [(1-(1+0.06/12)-12*15/(0.06/12)
PV= RM2,398.20 (0.5925/0.005)
PV= RM2,398.20 (118.5035)
PV= RM284,195.13
(c) Susan, who is 35 years old, would like to have RM1,000,000 in 25 years time for her
retirement. Upon retirement, she would want to have a comfortable lifestyle. Calculate
how much must Susan save up now (not end of the year) until her retirement and how
much can she withdraw annually from her retirement fund if she can live for another 20
years after her retirement (assuming she has no other sources of income upon
retirement)? Assume that the rate of return is 10 percent.
FV= PMT [(1+i)n-1)/i]
RM1,000,000= PMT [(1+0.10)25-1)/0.10]
PMT= RM1,000,000/(98.3471)
PMT= RM10,168.07

* Susan should save RM10,168.07 every year to have RM1,000,000 in 25 years later.

FV= PMT [(1+i)n-1)/i]

RM1,000,000= PMT [(1+0.10)20-1)/0.10]
PMT= RM1,000,000/(57.2750)
PMT= RM17,459.62

* Susan can withdraw RM17,459.62 every year in 20 years later

(d) An investment will pay RM500 in three years, RM700 in five years, and RM1,000 in nine
years with 6 percent rate of return.

Required:

(i) calculate the present value of this investment.

PV= (RM500/(1+0.06)3) + (RM700/(1+0.06)5) + (RM1,000/(1+0.06)9)

PV= RM419.81+RM523.08+RM591.90
PV= RM1,534.79

(ii) if the investment is currently selling at RM1,550, would you invest? Explain your
answer.
- Not to invest, because the investment that cost RM1,534.79 should not sell at RM1,550.