Finance and Investment assignemnt 1 - Assignment Example

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Bank 2005 Finance and Investment Name: Course: Professor: Institution: City and State: Date: Question 1 (a) The assessable capital gain Gross capital gain= $ 15,000- $ 10,000 $ 5,000 (b) Net assessable capital gain Net assessable capital gain= Gross capital gain- Transaction costs-capital losses brought forward Net assessable capital gain=$ 5,000-0 $5,000 (c) Medicare Levy=1.5% Capital gain tax= (45-1.5)%*&5,000 $2,175 Question 2 (a) Taxable Income Tax Rate $0-$ 18,200 0% $18,201-$37,000 19% $37,001-$80,000 32.5% $80,001-$180,000 37% Over $ 180,000 45% (b) Taxable Income Tax at applicable rates Net Pay $19,000 3,610 15,390 $37,000 7,030 29,970 $ 60,000 19,500 40,500 $100,000 37,000 63,000 $ 1…
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Download file to see previous pages FV W/ Cont. Compounding =PV*e^rt Where: PV= Present Value R= Rate T= Time (i) Annually FV= $ 1,000*e^(.45)(1) $ 1,046.00 (ii) 6 monthly FV= $ 1,000*e^(.45/2)(1*2) $1,046.00 (iii) Quarterly FV= $ 1,000*e^(.45/4)(1*4) $1,046.00 (iv) Monthly FV= $ 1,000*e^(.45/12)(1*12) $1,046.00 (v) Daily FV= $ 1,000*e^(.45/365)(1*365) $1,046.00 (vi) Hourly FV= $ 1,000*e^(.45/8760)(1*8760) $1,046 (c) Effective interest rate tries to determine the entire cost of borrowing. It accounts for the effect compounding interest which is excluded from the stated or nominal interest rate. For instance, a loan with 10% interest compounded monthly will actually have a rate greater than 10% since the rate is accumulated on monthly basis. Effective Rate, R=(1+I/N)^N Where: R- Effective Rate I= Stated Interest Rate N=Number of compounding periods per year (i) Annually The effective annual interest rate is similar to compounded rate since number of compounding period is one. (ii) 6 monthly R=(1+0.045/2)^2 1.0225% 2.2500% (iii) quarterly R=(1+0.045/4)^4 1.0341% 3.4100% (iv) Monthly R=(1+0.045/12)^12 1.0420% 4.2000% (v) Daily R=(1+0.045/365)^365 1.0459 4.5900% (vi) Hourly R=(1+0.045/8,760)^8,760 1.0460 4.6000% (d) R=e^n R=2.718^0.045 = 4.6000% Question 4 (a) F.V = P.V (((1+r))^n-1)/r) Where: FV – Future Value PV-Present Value R- Interest Rate N= Time taken 2,000= 1000(((1+2%)^n-1))/.02) 2,000=1,000(1.02)^n-1/.02 (1.02)^n-1=(2000/1000)*.02 (1.02)^n-1=0.04 (1.02)^n=0.04 Nlog 1.02=1.04 N=1.04/In1.02 N=1.04/0.0198 N=52.5 Years (b) 2,000= 1000(((1+5%)^n-1))/.05) 2,000=1,000(1.05)^n-1/.05 (1.05)^n-1=(2000/1000)*.05 (1.05)^n-1=0.1 (1.05)^n=0.1 Nlog 1.05=1.1 N=1.1/In1.05 N=1.1/0.0488 N=22.54 Years (c) 2,000= 1000(((1+7%)^n-1))/.07) 2,000=1,000(1.07)^n-1/.07 (1.07)^n-1=(2000/1000)*.057 (1.07)^n-1=0.14 (1.07)^n=0.14 Nlog 1.07=1.14 N=1.14/In1.07 N=1.14/0.0677 n-16.85 (d) i=2, i=5 and i=7. (5 marks) F.V = P.V (((1+i/2))^0.5d-1)/i*2) (1+0.5i)^0.5d-1=(FV/PV)i*2 (1+0.5i)^0.5d = (FV/PV)i*2+1 d *0.5e^(1+0.5i)=(FV/PV)i*2+1 d = (FV/PV)i*2+1 0.5e(1+0.5i) Illustration: D= (2000/1000)*2*2+1 (0.5*2.718*(1+0.5*0.02) =9/2.269 =3.967 or 4% D= (2000/1000)*2*5+1 (0.5*2.718*(1+0.5*0.05) =21/2.09 =10.05 or 10% D= (2000/1000)*2*7+1 (0.5*2.718*(1+0.5*0.07) =29/2.07 =14% (e) F.V = P.V (((1+i/2))^0.25d-1)/i*4) (1+0.25i)^0.25d-1=(FV/PV)i*4 (1+0.25i)^0.25d = (FV/PV)i*4+1 d *0.25e^(1+0.25i)=(FV/PV)i*4+1 d = (FV/PV)i*4+1 0.25e(1+0.25i) Question 5 Global Financial Crisis (GFC) with explanation of securitization and discussion on the role it played in the beginning of the GFC. Global financial crisis is about the failure of global major financial institutions. The global financial crisis originated form in the United States (US) when investors lost confidence in mortgages ...Download file to see next pagesRead More
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