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a. If N250,000 is invested in an account that earns 4% per year compound interest, what is the:
i. value of the investment after 5 years? (3 Marks)
ii. total interest earned? (2 Marks)
b. When it was apparent that your parents could not afford to finance your university education, you sought and obtained a 4-year loan of N250,000.00 from Education Bank Limited. The bank imposed a simple interest rate of 7½%.
i. How much do you need to pay off the bank now
(4 years after) that you are through with your study?
(7 Marks)
ii. If you decide to be paying N25,000 every month from now and the bank agreed to reduce the interest rate to 1% per month on the unpaid balance at the beginning of the month, how much additional total interest will be paid? (8 Marks)
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A barber invests N100,000 for 5 years. At the end of the investment period, he receives a cash transfer of N120,600 as final settlement of the investment.
Required:
Use logarithm (to base 10) to determine the compound interest rate on the investment.
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Nike Kenny is a student of a state-owned polytechnic in Yobe. She planned to save N5,000 each year out of the emolument she collects from the work-study club of a school. How much will she have at the end of the tenth year if interest on her savings is 6% compounded semi-annually?
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Larry wishes to save money towards his new-born daughter’s wedding. He intends to save ₦50,000 on the first day of every 6 months for 18 years, starting immediately. The account pays interest of 6% compounded semi-annually. What will be the balance on the account at the end of 18 years?
A. ₦3,258,748.33
B. ₦4,368,748.34
C. ₦5,278,748.33
D. ₦6,588,748.33
E. ₦6,788,748.33
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Find Related Questions by Tags, levels, etc.
Suppose Bonde invested N240,000 in a savings account that paid interest twice in a year. After 8 years, the money had accumulated to N380,980. What was the annual compound interest rate?
A. 3.64%
B. 4.75%
C. 5.86%
D. 6.65%
E. 6.76%
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Suppose N1 million is deposited in a money deposit bank that is paying 7.5% interest per annum compounded annually. What will be the compound amount at the end of the third year?
A. N1,242,300
B. N1,243,400
C. N1,344,500
D. N1,345,600
E. N1,446,700
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a) You are the assistant to the Finance Manager of Kunta Medical Centre. Your boss is negotiating a deal with an investment company investing GH¢500,000 over 3 years. The main terms of the proposed investment deal are that if the amount is deposited now and invested continuously for 3 years, it would attract an 18% annual interest rate with quarterly compounding. However, if the initial deposit of GH¢500,000 is maintained and additional deposits of GH¢50,000 each are made at the beginning of year 2 and year 3, the deposits would attract 18.0% annual interest in year 1, 18.5% in year 2, and 19% in year 3, all with quarterly compounding.
Your boss has asked you to do some computations to inform her about the growth of the deposits based on the terms of the proposed deal.
Required:
i) Suppose GH¢500,000 is deposited now, and there are no top-up deposits in the future; Compute the future value of the deposit at the end of the third year. (3 marks)
ii) Suppose the initial deposit of GH¢500,000 is made now, and the top-up deposits of GH¢50,000 each are made in the future per the terms of the proposed investment deal;
b) Sesamu Dried Fruits Ltd is a fruits processing company in Ghana. The company has exported raw mangoes to a distributor in Japan. The invoice value of JP¥20 million is to be collected in three months. The exchange rate between the Ghanaian cedi (GH¢) and the Japanese yen (JP¥) is currently GH¢0.0584/JP¥1. It is expected that the Ghana cedi may appreciate against the JP¥ in the coming months.
Required:
Using the leading and lagging strategy for hedging currency risk exposure, is it advisable for the company to lag the collection of the JP¥ invoice value? (5 marks)
c) COVID-19 has led to volatility in the international money market. Although international business has seen some improvement, progress has been very slow. As a result, the risk of losing part of an investment due to exchange rate and currency value fluctuations are very high.
Required:
Explain how Interest Rate Swap and Currency Swap can be used to mitigate the effects of market volatility. (5 marks)
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Joy Mummy Ltd is establishing an endowment fund to finance a scholarship scheme to provide funding for the education of children of its employees. The company plans to make an initial deposit of GH¢500,000 into the fund now. The initial deposit will be invested for three years before any disbursements will be made from the fund. The effective annual rate of return on the fund is expected to be 14% in the first year, 15% in the second year, and 16.5% in the third year.
Required:
Compute the balance of the fund at the end of three years. (4 marks)
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a) Onana Events Company (Onana) is purchasing a building from a real estate company. The current cash price of the building is GH¢2,500,000. Onana can obtain a GH¢2,500,000 mortgage loan to finance the payment of the cash price of the building. The loan bears a compound annual interest rate of 18% and calls for equal payments at the end of each quarter for 20 years.
Required:
i) Compute the quarterly payment.
(4 marks)
ii) Compute the total interest that will be paid by Onana to the mortgage company over the life of the loan.
(2 marks)
iii) Suppose the real estate company is offering a credit payment plan to Onana. Per the credit terms, Onana will have to pay GH¢500,000 now and then pay GH¢110,000 at the end of each month for one year. The implicit interest rate is 20% per annum. Compute the aggregate present value of the payments under this option.
(4 marks)
b) Sempe Ghana Plc needs to have EUR650,000 in two months’ time to settle a trade payable. The management team fears that the cedi would depreciate against the euro in the coming months. The team is however divided over whether the currency risk exposure should be hedged using a forward foreign exchange contract or a futures foreign exchange contract. The following quotations have been obtained from Ghana’s foreign exchange market:
| FX Quotation | Bid Rate | Ask (Offer) Rate |
|---|---|---|
| Spot Rate | GH¢12.1854/EUR1 | GH¢12.4854/EUR1 |
| 2-month Forward Rate | GH¢12.5854/EUR1 | GH¢12.8854/EUR1 |
Required:
i) Explain to the management of Sempe Ghana Ltd whether the foreign exchange quotations provided above are direct quotations or indirect quotations.
(5 marks)
ii) Suppose the company uses the forward contract to hedge its currency exposure. Compute the outcome of the forward contract hedge.
(5 marks)
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