QUESTION
Figure 1: Excel Table Formatting Example
Table Formatting:
 Top row of table headings ‘Bold’ and ‘Centred’, may left justify left most cell of column headings – refer figure above
 Try to only use horizontal lines – in design less is more, but don’t confuse this with the basic economic premise that more is more….
 For column headings, use a single line on top and double line at the bottom
 Last row ends with single line on the bottom
 Where appropriate use other horizontal lines
 May use double lines to indicate sum
Graph Formatting:
 Use the right graph for the particular form of analysis
 Include meaningful Headings and Axis Titles (note I haven’t included yaxis label in Figure 2 because values are self explanatory)
 Ensure that headings, plots and other information don’t overlap each other.
 Choose an appropriate font
Figure 2: Comparative Graph of Share Price
Finally, complete the table below and add it to your assignment.
Outline
Each question is worth one mark and you must get the question correct to be awarded the mark, which means that there are no part marks for incorrect answers. The remaining two marks are awarded for your ability to use and format your Excel document as per the Finance 1 Excel formatting document.
Question 1
Estella, who has an exceptional credit record, has just purchased $10,000 worth of goods on invoice. The invoice has trade terms of 2/10 n30. Your task is to provide Estella with a graph that demonstrates how the cost of credit related to this invoice declines the longer she delays payment of the invoice. As well, your graph must indicate the point at which the cost of credit drops below 10% p.a.
Question 2
Pip recently contacted his bank about purchasing a Bank Bill with a maturity of six months. He was provided with the following options:
Option 1: Purchase 180day Bank Bill with a specified purchase price of $100,000.00 and an interest rate of 6.40% p.a.
Option 2: Purchase 90day Bank Bill with a specified purchase price of $100,000.00 and an interest rate of 6.30% p.a. On maturity of this Bill, roll the maturing funds into another 90day Bank Bill but at an interest rate of 6.50% p.a.
Provide calculations to demonstrate Pip’s preferred option.
Hint: when I say purchase price, I mean purchase price not face value. So think of this problem as a deposit/s into an account rather than a Bank Bill.
Question 3
An anonymous benefactor will provide you with six annual payments of $100,000 with the first payment being made today. Assuming that the appropriate discount rate is J_{2} = 10%, what is the present value of these cash flows?
Question 4
Mr Jaggers wants to retire 25 years from now. One year after retiring, he will draw down the first of 30 annual payments of $40,000. Assuming he currently has no savings and will earn a constant rate of 10% p.a. on all future savings, what constant amount must he save at the end of each year until he retires so that he can receive his desired retirement annuity?
Question 5
A deferred annuity with the first payment occurring four years from now has twenty semiannual payments of $1,000 each. The appropriate discount rate for calculating the present value of these cash flows is J_{2} = 10% p.a. Report the present value of the annuity (a) one year before the first payment and (b) today
Question 6
Using the annuity cash flows from Question 5 as a series of deposits made into a savings account and the interest rate from Question 5 as the return on savings, what is the balance of the account at the last deposit (includes the last deposit)?
Question 7
Calculate the price of a $100 thirtyyear bond with annual coupons of 8% p.a. when yields are quoted nominally at 6% p.a., 8% p.a. and 10% p.a. For each price, indicate whether the bond is selling at a discount, at par or at a premium. Remember, prices are rounded to 3 decimal places.
Question 8
Handel Ltd will pay dividends of $0.10, $0.20 and $0.30 per share in three years’ time, four years’ time and five years’ time, respectively. One analyst assumes that future dividends will grow by 3% p.a. while another thinks that 5% p.a. is a more appropriate constant dividend growth assumption. Using a 12% p.a. required rate of return, price the share under both growth assumptions and report the difference in prices.
SOLUTION
Amount  Interest Rate  
10000  10.00%  
5000  5.00%  
2000  0.40% 


400  0.20%  
0  0.00%  
400  0.20%  
2000  0.40%  
OPTION 1  
Purchase Price  Interest Rate  Bank Bill 
1000000  6.40%  970873.786 
OPTION 2  
Purchase Price  Interest Rate  Bank Bill 
1000000  6.50%  990099.01 
Formula  Face Value / 1 +[interest rate/100 x (settlement date maturity date/365)] 
Face Value (FV)  Rate Of Interest (i)  Time (n)  Present Value (PV) 
1000000  10.00%  6 years  56.6 
Formula  PV= FV x [1 / (1+i)^n] 
Amount  Interest Rate  Time  Constant Investment 
40000  10.00%  30 years  12000 
Formula  (Amount x rate time) / 100 x 3 
Amount  Interest  Time  Annual Present Value  Current Present Value  
1000  10.00%  20  225.22  0.22  
Formula  PV= FV x [1 / (1+i)^n] 
Annual Present Value  Balance  
225.22  774.78  
Workings: 1000 – 225.22 = 774.78
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Amount  Interest Rate  
10000  10.00%  
5000  5.00%  
2000  0.40% 


400  0.20%  
0  0.00%  
400  0.20%  
2000  0.40%  