INTERNATIONAL UNIVERSITY OF THE CARIBBEAN

Cornwall: Savanna La Mar Campus

Presented in partial fulfillment of the course:

(Business & Project Financing)

Course Code: PDM321

Bachelor’s Degree of Science in Business Administration with Programme and Project

Management

By

The University Council of Jamaica (UCJ)

Semester Two (January – April 2022)

Course Work: Final Test

Lecturer:

Mr. Leroy Paul

Submitted by:

Wenice Campbell, ID#:1227891

BUSINESS AND PROJECT FINANCING

ATTEMPT ALL QUESTIONS

Question 1

A You invest $10,000 with JMMB for 4 years at 12% pa. Calculate the future value of the investment if

1 interest is paid annually

2 interest is paid semi annually
3 interest is paid quarterly (9 Marks)

1. Interest is paid annually

FV =PV (1+r)n
=10000 (1+.12)4
=10000(1.12) 4
=10000(1.57351936)
=$15735.19

2. Interest is paid semi annually

FV= PV (1+r)n
r=12%/2=0.06
n= 4*2=8

FV =10000(1+.06)8
=10000(1.06)8
=10000(1.593848075)
=$15938.48

3. Interest is paid quarterly

FV =PV (1+r)n
r=12%/4=0.03
n= 4*4=16

FV =10000(1+0.03)16
=10000(1.03)16
=10000(1.6047064391)
=$16047.06
B You invest $20,000 with JMMB every year for 10 years at an interest rate of 6%pa. What would be the
. Value of the investment after 10 yrs. (4 marks)

Using the future value annuity

FV of Annuity= P*(1+r)n-1
R

FV of Annuity =20000*(1+0.06)10-1
0.06

=20000*(1.06) 10-1
0.06

=20000*13.1807949417

=$263615.90

C In A above calculate the effective interest rate if

1 interest is paid semi annually

Effective Interest Rate = r = (1 + i/n)^n - 1

= (1+0.12/2)2-1
i =0.1236
EIR =i*100
=0.1236*100
= 12.36%

2 interest is paid quarterly (6 Marks)

Effective Interest Rate = r = (1 + i/n)^n - 1

=(1+0.12/4)4-1
=0.125509
i =0.125509
EIR =i*100
=0.125509*100
=12.5509%
Question 2

XYZ Ltd has to decide whether to invest in project A or B . The Initial investment for both is $35,000
assuming a discount rate of 12% which project should be chosen. The cashflows are shown below

Year A B

1 10,000 11,500
2 13,500 12,000
3 9,000 8,500
4 (11,400) 10,500
5 14,000 12,000

Show all workings (20 Marks)

Projec
t A
10000 X 0.8929 8929
13500 X 0.7972 10762.2
9000 X 0.7118 6406.2
-11400 X 0.6355 -7244.7
14000 X 0.5674 7943.6
26796.3

Initial $35000.
Outlay 0
$26796.
NPV 3
$8204.7
0
Profitability
index
= NPV
Initial
Outlay

= 26796.3

35000

= 0.765
Explanation: Project A is not viable or feasible as indicated profitability index is negative
below

PROJECT B
11,500 x 0.8929 10268.35
12000 x 0.7972 9566.4
8500 x 0.7118 6050.3
10500 x 0.6355 6672.75
12000 x 0.5674 6808.8
39366.6

Profitability
index = NPV
Initial
Outlay

= 39366.6
35000

= 1.12476

Project B profitability index is more viable as it is positive or above 1 =1.24

Question 3

A What are the basic features of a bond? (4 Marks)

 Most bonds have five features when they are issued: issue size, issue date, maturity date,
maturity value, and coupon. Once bonds are issued, the sixth feature appears, which is yield to
maturity.

B Calculate the value of a 6 year bond with a coupon rate of 8% and a discount rate of 10% (4 Marks)

=8%*1000*1-(1+0.10)-6+1000
0.10 (1+0.10)6
=$911.37

C The value of a 5 year bond is $944.25. If current market rate is 10%. Calculate the coupon rate of
this Bond (6 Marks)

944.25*100=94.43%
1000

Coupon rate= 94.43%

D Comment on the value of both bonds (9 Marks)

  For question 3A: A bond with a face value of $1,000.00 and paying a coupon rate of 8.000%
(compounding annually), should be selling for $911.37 (selling at a discount).
 For question 3B: A bond with a face value of $1,000.00 and paying a coupon rate of 94.430%
(compounding annually), should be selling for $4,200.56 (selling at a premium).

Question 4

The Monthly payment on a 2 year loan is $1,771.42. The loan attracts an interest rate of 36%

Calculate

a) The loan amount

PMT =1771.42
i =0.36/12=0.03
n =24 months

Monthly Payment =$1771.42

Interest rate =36% =0.36
N =2 years =24months

PV =PMT 1 - 1
i (1+i)n

PV =1771.42 1- 1
0.03 (1+0.3)24

=1771.42*16.936 =30,000.77
=36%/12 =0.03 per month

Loan amount =PMT * 16.936

=1771.42*16.936
Loan amount =30,000.77
Total Payment =24 months * 1771.42
=42514.08

b) Finance charge of the loan

Finance Charge =Total Payment – Loan amount

=42514.08-30,000.77
Finance Charge =$12513.31

c) An Amortisation schedule showing the first 4 months of the loan (20 marks)

Month 1
$30000.77*0.36 =$10800.28 (per annum)
$1080/12 =900.02 (monthly interest)
$10800.27/12 =900.02
Principal =1771.42-900.02
=871.40
Closing bal =30000.77-871.40
=$29,129.37

Month 2
29129.37 * 0.36 =$10486.57 (Interest PA)
10486.57/12 =873.88 (interest per month)
1771.42-873.88 =897.54 Principal
29129.37-897.54 =28231.83 closing Bal

Month 3
Closing bal*36%
28231.83*0.36 =$10163.46 (Interest PA)
10163.46/12 =$846.96 (interest per month)
1771.42-846.96 =924.46 Principal
Closing bal =28231.83-924.46
=$27,307.37

Month 4
Opening bal =$27307.37
Interest per annum =27307.37*0.36
=9830.65
Int per month =9830.65/12
=819.22
=27307.37/818.22
(Closing bal =26488.15)
Principal =1771.42-819.22
=952.20
 Period Opening Monthly Monthly Monthly Closing
Balance Payment interest Principal Balance
Month 1 $30000.77 $1,771.42 $900.02 $871.40 $29129.37
Month 2 $29129.37 $1,771.42 $873.88 $897.54 $28231.83
Month 3 $28231.83 $1,771.42 $846.96 $924.46 $27307.37
Month 4 $27307.37 $1,771.42 $819.22 $952.20 $26488.15

Question 5

What is the present value of $150,000 to be received

a) In 6 years at 7% pa (4 Marks)

In 6 years at 7% pa (4 Marks)
PV=FV (1+I) n
PV=150000 X (1+0.07)6
PV=150000 X (1.07)6
PV=150000 X 1.5007
PV=$225,105

b) In 4 years at 10%pa (4 Marks)

In 4 years at 10%pa (4 Marks)

PV=FV (1+I) n
PV=150000 X (1+0.10)4
PV=150000 X (1.10)4
PV=150000 X 1.4641
PV= $219,615

c) You invest $12,000 today for 4 years. Upon maturity you receive $19,326. What was the
interest rate of this investment? (5 Marks)

= 19326-12000
=7326
=7326/12000
=0.6105
=0.6105 X 100
=61.05%
d) After investing $ 8,000 every year in a retirement scheme for 10 years you expect to receive
$105,448 up on retirement. What was the interest rate on this investment? (5 Marks)

n= 10 years
Yearly investment = $ 8,000
Expected amount =$105,448

= 8000 X 10
=80000
=$105,448 -$80000
=$25488
=$25488 / $80000
=0.3181
=0.3181 x 100
=31.81%