TEST

Name : Fatin Nasuha Binti Abdul Razak

ID : 18002908

1. Kumki wants to buy a vacation house in two year’s time. He expects it to cost
RM220,000 at that time. He has the following sources of money:
i. He currently has RM20,000 in a bank account that pays 6% compounded monthly.
ii. Kumki has promised to deposit RM5,000 a month for 24 months starting today into the
bank account. It pays a nominal rate of 5%.
iii. At the time of purchase, they will take out a mortgage. They anticipate being able to
make payments of about RM1,000 a month on a 15-year, 12% loan.

In addition, Kumki plans to make quarterly deposits in an investment account that pays
8% compounded quarterly to save up any shortfall in the amount required. The first
deposit will begin a year from today. Show the workings clearly.
(a) Calculate the accumulated sum in the bank account at the time of purchase.5m

Deposit = RM20,000
Interest r = 6%
Year = 2
Determine FV
FV = PV (FVIF i%, n)
FVn = PV x { 1 + (r/m)} nxm
= 20,000 x [ 1 + ( 0.06/12)]2x12
= 20,000 x ( 1.127)
= RM22, 540 #

b) What is the shortfall amount at the time of purchase? 5m

Lets consider a period : 01/01/2020 to 01/01/2022

Payment = Quarterly compounded

Rate r = 8% or 0.08
Deposit = RM5,000
 Tenure = 2 years or 24 months
Norminal rate = 5% or 0.05

FV = PV (FVIF i%, n)
FVn = PV x { 1 + (r/m)} nxm
(1+𝑟)𝑛 − 1
FV = PMT x ( ) (1+r)
𝑟
(1+0.005)2 − 1
FV = PMT = (5,000 x 12) x ( ) (1 +0.05)
0.005

FV = 60,000 x (2.05)(1.05)
FV = RM129,150

Finding shortfall
Payment = Quarterly compounded
Rate r = 8% or 0.08
FVn = PV x { 1 + (r/m)} nxm
= 5,000 x { 1 + (0.08/q)} nxq
= 5,000 x ( 1 + (0.08/3) 2x3
= 5,000 x ( 1.0267) 2x3
= 5,000 x 1.171
= RM5,855

1000 X 0.12 = RM420

In 1 year able to pay 440
In 15 years able to pay 21,600
Expected cost 220,000 – 21600 =rm498,400

(b) What is the equal amount of quarterly deposit by Kumki? 5m

PMT = 1000
R = 12% or 0.12
N = 15 years

Loan amount = RM160,000

FV = PMT (FVIFA % n )
 1,000 ( 1,000 + 3.7280)
= 1,000 x 37280
= 37,280,000
Quarterly = 15 years = 360 month = 120 quarterly
37,280,000 / 120
= RM310, 666.70

2. What is meant by the goal of maximization of shareholder wealth? What are some of
the ways in which manager-shareholder conflicts may be controlled? Give four ways
• Give the incentives to shareholders
• By the steps of regulations - Principal-agent relationships can be regulated,
and often are, by contracts, or laws in the case of fiduciary settings