Financial Investment- Formulas of Compound Interest, Taxable Income, and Annual Depreciation - Assignment Example

FINANCIAL INVESTMENT: ASSIGNMENT QUESTIONS by Student’s Name Code + Course Name Professor’s Name University Cite, State Date Financial Investment: Assignment Questions Question 1 Compound Interest Formula; A= P (1+r/n) nt Whereby, P=principal amount, r= annual interest rate, t= no. of years, A= expected accumulated amount, n= no. of times interest rate is compounded yearly. a) A= P (1+r/n) nt 3,000=1,000(1+0.02/1) t 3,000= 1,000(1.02) t 3=log t (1.02) Log t= 3/1.02 t=0.5 years, 6 months b) A= P (1+r/n) nt 3,000=1,000(1+0.05) t 3= 1.05t Log t= 3/1.05 t= 0.5 years, 6months c) A= P (1+r/n) nt 3,000=1,000(1+0.1) t 3=1.1t Log t= 3/1.1 t= 0.4 years, 4 months d) T= 0.148{(P/A)/(1+i)}, where P= principal, A= amount and i= interest rates and 0.148 is constant=k Question 2 2 a) Taxable income Tax on this income 0 – $18,200 Nil $18,201 – $37,000 19c for each $1 over $18,200 $37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000 $80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000 $180,001 and over $54,547 plus 45c for each $1 over $180,000 (Source: Australia Taxation Office, 2013) 2b) i) $19,000= Nil+ (19,000-18,200)* 0.19c = $ 152 ii) $37,000= Nil+ (37,000-18,200)*0.19c = $ 3,572 iii) $75,000 = 3,572+ 0.325*(75,000-37,000) = $ 15,922 iv) $ 160,000= $ 17,547+ 0.37*(160,000-80,000) =$ 47,147 v) $250,000= $ 54,547+ 0.45*(250,000-180,000) = $ 86,047 Question 3 Compound Interest Formula; A= P (1+r/n) nt 3 a i) A = 1,000(1+0.05)1 A= 1,000*(1.05)1 FV= $ 1,050 ii) A= P (1+r/n) nt A= 1,000(1+0.05/2)2 A= 1,000(1.025)2 FV= $ 1,050.63 iii) A= P (1+r/n) nt A = 1,000(1+0.05/4)4 A = 1,000(1+0.0125)4 A = 1,000(1.0125)4 FV= $ 1,050.95 iv) A= P (1+r/n) nt A= 1,000(1+0.05/12)12 A=1,000(1+0.0042)12 A= 1,000(1.0042)12 FV= $ 1,051.58 v) A= P (1+r/n) nt A= 1,000(1+0.05/365)365 A = 1,000(1+0.000137)365 A = 1,000(1.000137)365 FV= $1,051.27 vi). A= P (1+r/n) nt A= 1,000(1+0.05/8,760)8,760 A= 1,000(1+0.00000571)8,760 FV= $ 1,649.02 Question 3 b FV = Original Investment x (1+interest rate) n 1,000(1+0.05)8,760 FV= $ 1,649.02 The answer is similar because of the assumption that their respective time value for money is also same hence a similar value for that matter. Question 3 C) Annually, FV=P (1+r) n 1,050 = 1,000(1+r) 1 1,050/1,000 =1log (1+r) 1.05/1=log (1+r) 1.05= log (1+r) 1+r= antilog 1.05 r= antilog 1.05-1 r= 3.8865 6 monthly, FV=P (1+r) n 1,050.63= 1,000(1+r) 2 1.050.63/2= log (1+r) 0.52531=log (1+r) r= antilog 0.52531-1 r= 1.2137-1, 0.2137 Quarterly, FV=P (1+r) n 1,050.95= 1,000(1+r) 4 1,050.95/1,000= 4 log (1+r) 1.05095/4= log (1+r) 0.2627=log (1+r) r=antilog0.2627-1 r= 1.4954-1 r=0.4954 Monthly, FV=P (1+r) n 1,051.58= 1,000(1+r) 12 1.05158/12= log (1+r) Antilog 0.0876-1 = r r=0.4804 Daily FV=P (1+r) n 1,051.27= 1,000(1+r) 365 1.05127/365=log (1+r) 0.0028= log (1+r) r=0.4767 Hourly, FV=P (1+r) n 1,649.02= 1,000(1+r) 8760 1.64902/8760=log (1+r) 1.8824=log (1+r) r= 0.5272 Question 3 d 1,050= 1,000(1+r) 8760 1.050/8760= log (1+r) r= antilog 0.1198 = 0.5267 They interest rates are similar due to the fact that the future value of money is affected by both the time factor and rather than the interest rates. Question 4 4a). Annual Depreciation = Cost of the machine- salvage value/ no. of useful life 10,000-0/10 = $1,000 b) Current book value of the machine = $10,000- (5*$1,000) = $10,000-$5,000 = $ 5,000 c) The current company tax rate in Australia stands at 30% (Australian Taxation Office, 2013). d) {Cost of the machine- salvage value/ no. of useful life periods}*30% 10,000-2,000/10*0.3= $ 240 e) {Cost of the machine- salvage value/ no. of useful life periods}*30% (10,000-5,000/10)*0.3= $ 150 f) {Cost of the machine- salvage value/ no. of useful life periods}*30% (10,000-7,000/10)*0.3 = $ 90 Question 5 The Global Financial Crisis is believed to have been initiated in July of 2007 with a substantial credit crisis within the United States of America markets (Davies, 2014). This resulted from the immediate loss of confidence by the potential and existing United States investors in the value set for sub-prime mortgages that enhanced the liquidity crisis. The loss of confidence by the United States investors led to the US Federal Bank injecting substantial amounts of capital resource into the financial markets (Davies, 2014). At the end of the financial year 2008, the Global Financial Crisis had reached its peaks the world over as was witnessed by the crushing of major stock markets due to volatility of stock prices (Davies, 2014). In Australia, the government led by the then PM- Kevin Rudd and in a bid to cushion their citizen against the effects of crisis announced that it would guarantee bank deposits for family households across the nation (Davies, 2014). This was achieved by the introduction of an economic packages stimulus that involved payments worth $10.4 billion (Davies, 2014). The Australian cash rate is at a low of 2.5% due to lower demands for borrowings from customers hence lower cash rates set in order to encourage lenders to source for loans and other long-term funds (RBA, 2014). It might also be low due to the fact effective monetary policies have been established by the RBA in order to cushion potential borrowers from exploitative overnight interest rates. The cash rate is expected to remain low due to the fact that the Australian economy is stable and is now on the advanced stages of the Global Financial Crisis that had previously wrecked its credit sector. References List Australian Taxation Office. 2013. Company tax: Tax rates 2012-13. Retrieved March 31, 2014 from http://www.ato.gov.au/rates/company-tax/ Australian Taxation Office. 2013. Individual income taxes: Residents. Retrieved March 31, 2014 from http://www.ato.gov.au/Rates/Individual-income-tax-rates/ Davies, J.2014. Global Financial Crisis- what caused it and how the world responded? Canstar, Retrieved March 31, 2014 from http://www.canstar.com.au/home-loans/global-financial-crisis/ RBA. 2014. Cash rate target: interest rate changes. Retrieved March 31, 2014 from http://www.rba.gov.au/statistics/cash-rate/cash-rate-2002-2007.html Read More