Question

Maths of finance

This task assesses the following learning outcomes:

• Time value for money and the rate of return
• Assess the simple interest and compound interest
• Net Present value in Capital Budgeting (Internal rate of return, Payback period)
• Annuities (PV, FV, Growth Annuities, types of Annuities)
• Perpetuities (PV, Growth Perpetuities)

5. You can invest in to projects:

PROJECT A A five-year scope project that consists on an initial investment of 110,000€ and a set of 5 yearly revenues of 25.000€ from year 1 to year 5

PROJECT B A six-year scope project that consists on an initial investment of 100,000€ and a set of 6 yearly revenues of 21.000€ from year 1 to year 6

a) If the cost of capital is 6%, which one would you choose and why?

b) if you only want your money back as soon as is possible. What is the best option?

6. Also, you are thinking in buy your first apartment and use your money as the initial payment. The apartment that you like has a final cost of 350,000€.

a. What is the amount of the rest of the money that you have to pay?

b. You ask for a mortgage scheme for 15 years with an interest rate of 3% compounded monthly. What is the amount of the payments (cashflow) if you start pay at the end of the month?

c. What is the total amount if you ask for a period of mercy, 3 months?

Answer 1