FINANCIAL MANAGEMENT (HFT20303)

SEMESTER FEB 2021

DR. RUZANIFAH KOSNIN

INDIVIDUAL ASSIGNMENT 1 TOTAL MARKS:

CHAPTER 4 TIME VALUE OF MONEY 32

Answer ALL questions below:

PV
1. How much money must be put into a bank account yielding 5% annually in order to have
RM250 at the end of five years?
FV n
PV 0=
( 1+ i )n
250
(1+0.055)5
= 191.28

Or Using PVIF Table

PV 0=FV n × PVIF i , n
¿ 250 × PVIF5.5 % ,5
= 250 × (0.7835 + 0.7473)/2
= 250 x 0.7654 = 191.35
(2 marks)
(correct answer – 2 marks; if answer is wrong but the formula is correct – 1 mark)

2. If you want to have RM20,000 in 10 years, how much money must you put in a investment
account today? Assume that the investment account pays 6% annually.

FV n
PV 0= n
i
(1+ )
m
1700
PV 0= 7 ×4
6%
(1+ )
4
1700
PV 0=
(1.017)28
= RM1,120.49
(2 marks)
(correct answer – 2 marks; if answer is wrong but the formula is correct – 1 mark)

FV
3. En. Azman has confirmed that the company will get an additional investment worth of RM1
million from his partner company based in Indonesia. His partner promises to inject the money now
and want to see the investment growth result in 5 years. If the growth rate is 7% per annum, what
will the value of the investment after 5 years?
 n
FV n=PV 0 ×(1+i)
5
FV n=1 MIL ×(1+ 7 %)
= RM1.4 MIL

Or Using FVIF Table

FV n=PV 0 × FVIF i , n
FV n=1 MIL× FVIF 7 %,5
= 1.4 MIL

(2 marks)

(correct answer – 2 marks; if answer is wrong but the formula is correct – 1 mark)

4. How much an initial investment of RM200 will grow if it is invested today at 8% compounded
semiannually for 4 years?
n
FV n=PV 0 ×(1+i)
10
FV n=200 ×(1+8 %)
= RM431.78
Or Using FVIF Table
FV n=PV 0 × FVIF i , n
FV n=200 ×2.1589
= RM431.78
(2 marks)
(correct answer – 2 marks; if answer is wrong but the formula is correct – 1 mark)

Annuity
5. What is the present value of RM400 to be received at the end of every year for 10 years, if the
discount rate is 5% annually?

Pymt 1 1
PVA 0= ×[1− ]
i (1+i )
n

PVA 0=
400
5%
× 1−
[ 1
( 1+5 % )10 ]
[
=8,000 x 1−
1
1.6289 ]
= 8,000 x 0.3861
= RM 3,088.71

Or Using PVIFA Table

PVA 0=Pymt 1 × PVIFA i ,n
= 400 x 7.7217
= RM 3088.68
(2 marks)
(correct answer – 2 marks; if answer is wrong but the formula is correct – 1 mark)

6. What is the value of your investment at the end of 10th year if you deposited RM1,000 at the
beginning of each year? Assume you can earn 12 % return on your investment.
 [ ]
n
(1+i) −1
FVADn=Pymt × ×(1+i)
i

[ ]
15
(1+12 %) −1
FVAD n=1000 × ×(1+12 %)
12 %
= 1000 x 37.2797 x 1.12
= RM 41,753.28

Or Using FVIFA Table

FVAD n=Pymt ×(FVIFA ¿¿i , n)×(1+i)¿
= 1000 x 37.28 x 1.12
= RM 41,753.6

(2 marks)
(correct answer – 2 marks; if answer is wrong but the formula is correct – 1 mark)

Amortization
7. You have study loan of RM24,000 to continue your master’s degree. You plan to make annual
payments over a 5-year period. The bank has offered you a 2% interest rate. Calculate the total
amount of payment you will pay the bank every year. Make an amortization schedule for the loan.

PV 0
Pymt=
PVIFA 2 %,5 i ,n
24 , 000
Pymt=
4.7135

= RM 5091.76
(2 marks)

Amortization Schedule:
Year Beginning Payment Interest Principal Ending
Balance Payment Payment Balance
2%
1 24,000 5091.76 480 4611.76 19388.24
2 19388.24 5091.76 387.76 4704.00 14684.24
3 14684.24 5091.76 293.68 4789.08 9886.16
4 9886.16 5091.76 197.72 4894.04 4992.12
5 4992.12 5091.96 99.84 4992.12 0
(2 marks) ½ mark each ½ mark each ½ mark each = ½ mark each
= (4 marks) = (4 marks) (4 marks) = (4 marks)
(18 marks)