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 80 percent of the RM650,000 of the purchase house. The ARB Bank charges 14.5 percent compounded monthly on its mortgage loan. The Trust Bank charges 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 c) Anaina Raisya has identified an investment project with the following cash flows. Compute the future value of the investment in year 5 with the discount rate of 10%. Cash Flow Beginning of Year 1 2 3 4 5 RM 1,050 RM 2,500 RM 3,000 RM 4,800 RM 5,250 (6 marks) d) Explain the meaning of compound interest and how does compound interest differ from simple interest (5 marks)