What is the effective interest rate on the loan

Reference no: EM132305619 , Length: word count:1500

Fundamentals of Finance Assignment -

Unit Learning Outcome -

Describe, analyse and apply key financial concepts, including the importance and functions of finance in business organization; time value of money; Australian monetary system; risk-return measurement and trade-off in terms of individual asset and portfolio; Australian financial system, as well as global financial markets.
Utilize tools and technology, such as basic algebra, Microsoft Office software and internet resources, to collect, evaluate and organize financial information.
Conduct academic and practical analysis on real-world financial issues and supply feasible solutions based on processed information.

Assignment Questions -

Question 1 - To be completed both in Word and Excel document. Please screenshot Excel Answers into Word document.

Suppose there is a house that you really like which costs $800,000. You have $200,000 in savings so you only need to borrow the remaining balance of $600,000. You go to a bank and apply for a $600,000 loan. The bank approves your loan application and quotes you an interest of 3.7% per annum for a 30-year loan. The payment on the loan are to be made monthly.

a. What is the minimum monthly payment amount on the loan if you wish to repay the entire amount in exactly 30 years?

b. What is the effective interest rate on the loan?

c. Construct a mortgage amortisation table in Excel showing the interest payment, the amortisation of the loan, and the loan balance for each month. Please copy paste the table into Word Document.

d. What is the total amount ($) paid back? As a percentage of the total repayments, how much will the total interest payments be over the course of the entire loan i.e. 30 years?

After 5 years of living in the house, you realise that the house is too big for you, so you decide to move back with your parents and rent your house out for $450 per week. After accounting for the maintenance expenses, you are able to put in an extra $1,200 per month toward your mortgage payments.

e. How long will it take you to repay your loan (assume this is $1,200 on top of the monthly minimum payments you calculated in Q1a).

f. As a percentage of the total repayments, how much will the total interest amount be over the course of the entire loan?

Question 2 - You own $1 million worth of Lovely Candy Ltd shares. The value of your company's stock is very sensitive to the price of sugar. When world sugar crops are low, the price of sugar rises significantly, and Lovely Candy suffers considerable losses. The fortunes of Lovely Candy stock can be described as follows:

	Normal Year for Sugar		Abnormal Year
	Bullish Stock Market	Bearish Stock Market	Sugar Crisis
Probability	0.5	0.3	0.2
Rate of Return	0.25	0.1	-0.25

Part A - Calculate the expected return and standard deviation of Lovely Candy.

Part B - You are really worried about the risk of Lovely Candy shares and you are looking for ways to reduce this risk. You have 2 options:

Portfolio 1: Instead of holding $1 million worth of Lovely Candy, you can invest 50% in Lovely Candy and 50% in a risk-free asset such as Treasury Bills. The rate of return on Treasury Bills is 5 percent.

Portfolio 2: When researching about the sugar industry, you notice that during years of sugar shortage Sugar Kane reaps unusual profits and its stock prices rise. You realise that you may be able to reduce the risk of your holdings by investing 50% in Lovely Candy and 50% in Sugar Kane. A scenario analysis of Sugar Kane stock price is as follows:

	Normal Year for Sugar		Abnormal Year
	Bullish Stock Market	Bearish Stock Market	Sugar Crisis
Probability	0.5	0.3	0.2
Rate of Return	0.01	-0.05	0.35

i. Perform the scenario analysis for each option.

ii. Calculate the expected return and risk of portfolio 1 and portfolio 2.

iii. Which option is better and why?

Question 3 - You are given the betas of the following company:

Company's name	Company's ticker symbol	Beta
Tiffany & Co	TIF	1.57
Amazon Corp	AMZN	1.43
General Electric Corp	GE	1.15
Microsoft Corp	MSFT	0.99
Phillip Morris Corp	PM	0.9
Exxon Mobile Corp	XOM	0.83
Newmount Mining Corp	NEM	-0.21

Comment on the relationship between the beta of each of these companies and the nature of their business, risk, industry and the volatility of their cash flows.

Requirements -

a. The marking of this part will be based on research quality. Students need to undertake comprehensive research using a number of available resources. Each group needs to cite at least 7 scholarly references as evidence of their research. Failing to reach this minimum level will result in losing marks. Scholarly references include book chapters, articles published by mainstream media (paper press and/or website resources) and peer-reviewed journal articles. Wikipedia or Investopedia CANNOT be used as academic reference.

b. Word limit: 1,500 words (+/- 10%; Including in-text citation).

Attachment:- Assignment File.rar

Reference no: EM132305619

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Reviews

len2305619

5/14/2019 9:35:08 PM

Word count: 1500. Submission - Only electronic submission via CloudDeakin Assignment Dropbox will be accepted. Hardcopy or email attachment directly to Unit Chair will NOT be marked. Please assign ONE member to submit. Submission from multiple members may well lead to unintended consequence, such as high percentage similarity in Turnitin report. CloudDeakin Assignment Dropbox has no limit on how many times students submit, but ONLY most recent submission will be marked.

5/14/2019 9:34:56 PM

Each group should submit ONE WORD document and ONE Excel document. The WORD file should include: Page (including group number, student names and student IDs) Table of contents: indicate each question, their sub-sections (such as a and b) and relevant page numbers; Body/content of the assignment: all questions should be answered in order; Reference list: Harvard referencing style; Appendix. Students will receive an email in their Deakin email address confirming that the submission is completed. Please keep this email receipt. Students had better confirm the visibility of their assignment in the ‘Submissions’ view of the Assignment Dropbox folder after uploading. Students/Groups must keep a backup electronic copy of their submission, until the marked assignment has been released online. In the unlikely event that one of their assignments is misplaced, they will need to submit the backup copy.

5/14/2019 9:34:49 PM

Penalties for late submission: the following marking penalties will be applied if students submit an assessment task after the due date without an approved extension: 5% will be deducted from available marks for each day up to five days. Assignment format and referencing (2 marks) Assignment total marks: 40 + 30 + 28 + 2 = 100 marks. It will be converted to 30 marks out of your total assessment. For example: if your receive 80/10 marks, your assignment grade will be 80/100 * 30 = 25 .

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