Accounting Question

Introduction

There are 100 marks available for this assignment. This assignment is worth 10% of your course grade.

For Assignment 2, you will submit a single Word document, please review the

Submission Guidelines

. You can use a financial calculator, formulas, or a combination of the two. For possible partial marks, show your calculations, whether formulas or calculator inputs.

All numbers over 999 need commas (e.g., 3,472,387.98). Use one or two decimals of accuracy in your final answer. If the final answer is a percent, you must use the % key. If it’s money, use the $ sign and two decimals. There is a big difference between a number, a percent, and a dollar amount.

Make sure to clearly explain your work so that your Open Learning Faculty Member can give feedback. You may get partial marks, even if your final answer is incorrect.

Instructions

Complete the following in the order listed, and label your work.

You want to have $17,500 in 10 years for a dream vacation. If you can earn an interest rate of 0.3% per month, how much will you have to deposit today? (10 marks)

Fred deposited $2,700 into an account 9 years ago to save for a boat. His account balance is now $4,025. What annual rate of return did Fred earn on this investment? (10 marks)

Your bank will pay you an interest rate of 0.102% per week. You want to have $22,500 in 10 years. How much will you have to deposit today? Assume 52 weeks per year. (10 marks)

1. Ellen won a lottery that will pay her $100,000 a year for 20 years, or she can accept $1,500,000 today. (10 marks)

Assuming she can earn 2.5% and maximizing her winnings is the only consideration, which offer should she accept? Show your calculations.

1. Assuming she can earn 3%, what would be the lump sum today equivalent to the 20 payments of $100,000?

Your bank has an interesting savings offer for you. If you deposit $5,250 today, the bank will pay you an annual interest rate of 4% for 5 years, 4.6% for the next 4 years, and 5.3% for the next 8 years. How much will you have in your account in 17 years? (10 marks)

1. You want to buy a house that costs $220,000. You will make a down payment equal to 15% of the price of the house and finance the remainder with a loan that has an APR of 5.23% compounded monthly. If the loan is for 25 years, what are your monthly mortgage payments? (10 marks)

You are considering the purchase of new living room furniture that costs $1,220. The store will allow you to make weekly payments of $26.66 for 1 year to pay off the loan. What is the EAR of this arrangement? (10 marks)

1. Sahali Corp. has an outstanding bond with a coupon rate of 7.6% and semi-annual payments. The yield to maturity is 8.8%, and the bond matures in 18 years. What is the market price if the bond has a par value of $2,000? (10 marks)

Aberdeen Corp. has an outstanding bond with a coupon rate of 8.5% with semi-annual payments and a yield to maturity of 9.20%. The bonds mature in 6 years. What is the market price of a $1,000 face value bond? (10 marks)

At the time of the last referendum, Québec provincial bonds carried a higher yield than comparable Ontario bonds because of investors’ uncertainty about the political future of Québec. Suppose you were an investment manager who thought the market was overplaying these fears. In particular, suppose you thought that yields on Québec bonds would fall by 50 basis points. Which bonds would you buy or sell? Explain your reasoning.