(a) Consider the following two savings plans that you can make at the age of 21: Option 1: Save RM3,000 a year for 10 years. At the end of 10 years, make no further investments, but invest the total amount accumulated at the end of 10 years until you reach the age of 65. Option 2: Do nothing for the initial 10 years, start saving RM3,600 a year every year thereafter until you reach the age of 65. If you were able to invest your money at 8% over the planning horizon, which saving option will you choose? Explain why?
(a) Consider the following two savings plans that you can make at the age of 21: Option 1: Save RM3,000 a year for 10 years. At the end of 10 years, make no further investments, but invest the total amount accumulated at the end of 10 years until you reach the age of 65. Option 2: Do nothing for the initial 10 years, start saving RM3,600 a year every year thereafter until you reach the age of 65. If you were able to invest your money at 8% over the planning horizon, which saving option will you choose? Explain why?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:(a)
Consider the following two savings plans that you can make at the age of 21:
• Option 1: Save RM3,000 a year for 10 years. At the end of 10 years, make
no further investments, but invest the total amount accumulated at the end of
10 years until you reach the age of 65.
• Option 2 : Do nothing for the initial 10 years, start saving RM3,600 a year
every year thereafter until you reach the age of 65.
If you were able to invest your money at 8% over the planning horizon, which
saving option will you choose? Explain why?
(b)
Mr Jet Lee borrowed a personal loan of RM21,061.82 from May Finance
Bhd to finance his education expenses studying at a local university. The loan
carries an interest rate of 6% per year and is to be repaid in equal installments
over the next five years. Assume that the money was borrowed at the beginning
of the first year and that the first installment will be due a year later.
(i)
Calculate the amount of the annual installments.
(ii) What is the amount of interest charged and the ending balance for the loan
in the second year?
(ii) Mr. Jet Lee successfully negotiate with May Finance Bhd to defer paying
for the first loan installment until the end of year two but he will still make
five equal installments at 6% interest.
What will be the new amount of annual installments?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education