Answer Happy

Question 4 a) You plan to purchase a new house. To finance the purchase, two banks in the area offer 30-year mortgage loan for 30 percent of the RM650,000 of the purchase house. The ARB Bank charge: 14.5 percent compounded monthly on ite mortgage loan. The Trust Bank charge: 14.2 percent compounded semiannually. Compute the effective annual return (EAR). Which bank you will choose? (6 marks) b) Compute the present value of RM5,000 per year at a discount rate of 6%, if the first payment is received 8 years from now and the last payment is received 25 years from now. (8 marks) Continued... ZS 4/8 BEN1024 PRINCIPLES OF FINANCE IS APRIL 2012 c) Anaina Raisya has identified an investment project with the following cash flowe. Compute the future value of the investment in year 5 with the discount rate of 10%. 1 2 RM 1,050 RM 2,500 RM 3,000 3 4 RM 4,800 RM 5,250 (6 marks) S Beginning of Year d) Explain the meaning of compound interest and how does compound interest differ from simple interest. (5 marks) (TOTAL: 25 MARKS)