Question

In: Finance

(a) Eighteen months ago, Aishah deposited RM1500 in a savings account earning 5% interest compounded semi-annually. At the same time, she ...

(a) Eighteen months ago, Aishah deposited RM1500 in a savings account earning 5% interest compounded semi-annually. At the same time, she deposited RM150 at the end of every month in another account earning 3% interest compounded monthly. Today, she intends to withdraw all her money from both accounts to pay part of the 10% down payment for a new motorcycle. The cash price of the motorcycle is RM54000.

How much is the total withdrawal from both accounts?

Aishah plans to take up a loan from a finance company to finance the 90% balance of the motorcycle price. The finance company charges interest at 4.5% compounded monthly and the loan is payable in six years. How much will the monthly payments be?

Offer 1: 12% compounded quarterly

Offer 2: 13.55% simple interest

(b) Malaya Bank offers two interest rates for fixed deposits. If you want to invest for two years, which offer would you choose? Show your working to justify your choice.

(c) The cash price of a condominium is RM204600. It can be purchased through an instalment of 10% followed by 360 equal monthly payments. The interest charged is 6.8% compounded monthly. Find the monthly payment.

Solutions

Expert Solution

a.

i.

Given first account RM 1500 in the account that pays 5% semi annually for 18 months

So amount deposited = RM 15001500*(1+0.025)3

APR = 5%

Periodic rate of interest r = 5%/2=2.5% = 0.025

Number of periods, nper = 18 months = 3

(Since 6 months = 1 semi annual period)

Amount A= P(1+r)n

A= 1500*(1+0.025)3

A= RM 1615.34

 

ii.

 

(b)

Given effective rate

12% compounded quarterly

Effective rate = (1+12%/4)^4-1

                         = (1.03)^4-1

                         = 0.125509

                         = 12.55%

 

Simple interest = 13.55%

 

Since we have higher interest rate on offer 2, it is better to choose offer 2.

 

(c)


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