Question

(a) tar Ram Prasad invests $$ 500,000 in a fixed deposit for 10 years with OCBC bank in Singapore The depost will ea anest of 7% per annum Assume annual compounding what will be the value of Mr Prasad's investment at the end of 10 years?

(b) Menus Shan has just purchased a Manis Alto car for Rs 300,000 from the Saboo car dealershin in achatam, fyderanat e pat rash Rs. 60 000 and financed the rest of the cost with a 3 year vehicle loan from ICICI bank that requires equal monthly payments at the end of each month over the next 3 years What is the monthly payment amount on the loan if the interest rate is 15% per annun
(c) Distinguish between ordinary annuity vs annuity due

Answer 1

The value of Mr. Prasad's investment at the end of 10 years will be approximately $935,070.09. The monthly payment amount on Menu Shan's vehicle loan will be approximately Rs 9,990.38. An ordinary annuity is a series of equal payments or receipts made at the end of each period, while an annuity due is a series of equal payments or receipts made at the beginning of each period.

Step-by-step explanation:

To calculate the future value of Mr. Prasad's investment of $500,000 in a fixed deposit with a 7% annual interest rate compounded annually for 10 years, we can use the formula for compound interest:

FV = P(1 + r/n)^(nt)

Where FV is the future value, P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

In this case, P = $500,000, r = 7%, n = 1 (since it's compounded annually), and t = 10. Plugging these values into the formula, we get:

FV = $500,000(1 + 0.07/1)^(1*10) = $500,000(1.07)^10 = $935,070.09

Therefore, the value of Mr. Prasad's investment at the end of 10 years will be approximately $935,070.09.

For the second part of the question, to calculate the monthly payment amount on Menu Shan's vehicle loan, we can use the formula for the monthly payment on a loan:

PMT = (P * r) / (1 - (1 + r)^(-n))

Where PMT is the monthly payment, P is the principal amount, r is the monthly interest rate, and n is the number of monthly payments.

In this case, P = Rs 240,000 (Rs 300,000 - Rs 60,000), r = 15% / 12 = 1.25% per month, and n = 3 years * 12 months/year = 36. Plugging these values into the formula, we get:

PMT = (Rs 240,000 * 0.0125) / (1 - (1 + 0.0125)^(-36)) = Rs 9,990.38

Therefore, the monthly payment amount on the loan will be approximately Rs 9,990.38.

Finally, an ordinary annuity is a series of equal payments or receipts made at the end of each period, while an annuity due is a series of equal payments or receipts made at the beginning of each period. The main difference between the two is the timing of the payments or receipts. For example, if you deposit money into a savings account at the beginning of each month, it is an annuity due. But if you deposit money at the end of each month, it is an ordinary annuity.