SSCM 4863

QUESTION 1 (10 MARKS)

Refer to the following promissory note. Suppose the note is sold by Mr. X on 1 September 2014
to a bank which prices notes at 8.5% per annum simple discount rate.

a)

How much money would Mr. X receive for the promissory note?
(4 marks)

b)

Calculate the rate of interest the bank would realize on its investment if it holds the
promissory note until maturity.
(3 marks)

c)

What rate of interest would Mr. X realize on his investment when he sells the promissory
note on 1 September 2014?
(3 marks)

QUESTION 2 (10 MARKS)

A customer borrowed RM10000 from a building society at 9% per annum simple interest on 1
January 2013. He had to repay the debt with four equal instalments at the end of every three
months. Use a correct time diagram, find the size of payments
a)

at the end of six months, and

b)

at the end of the year.

(4 marks)
(4 marks)
c)

Compare your answers in parts (a) and (b), and comment.

(2 marks)

SSCM 4863
QUESTION 3 (10 MARKS)
Mr. ABC can buy a second-hand car with two options of payments:
Option 1: Pay RM26000 cash now, or
Option 2: Pay RM13000 cash now, RM8000 in 1 year, and RM7000 in 2 years.
a)

If money is worth 6 =15%, which option is better for Mr. ABC in present value term?
Why?
(6 marks)

b)

If 6 is reduced to 9%, will this change Mr. ABCs decision? Justify your answer.
(4 marks)

QUESTION 4 (12 MARKS)

a)

Determine the effective interest rate j corresponding to 24 =12%.

(4 marks)

b)

Calculate 4 that is equivalent to 12 =15%.

(4 marks)

c)

A sum of money is invested for four years which earns interest at 4 = 8% in the first year,
at 6 = 10% in the second year, at 12 = 13% in the third year, and at 24 = 15% in the fourth
year. Find the level rate of effective interest per annum that would give the same future
value at the end of four years.
(4 marks)

QUESTION 5 (8 MARKS)
Mr. Lim invests RM50000 for five years. The nominal interest rate remains 9% each year although
in the first year it is convertible half-yearly, in the second year convertible quarterly, in the third
year convertible monthly, in the fourth year compounded weekly, and in the fifth year payable
daily. Assume there are 52 weeks or 365 days in one year.
a)

What is the accumulated value at the end of five years?

(5 marks)

b)

How much greater is the value obtained in (a) than the corresponding accumulated value
if it is assumed that the first year rate had remained unchanged for the five years?
(3 marks)

SSCM 4863
QUESTION 6 (10 MARKS)
a)

Madam Yee deposited RM1000 every 3 months into a savings account which pays interest
at 6.5% convertible quarterly. How much money would be in her account on 1 March 2012
immediately after her deposit, if the first deposit was made on 1 January 2006?
(5 marks)

b)

A self-employed young lady invests RM3000 from her small business return on every 31
December. After 10 such payments, she increases her deposits to RM4000 per annum.
Assuming that she has been earning 7.5% per annum effective for the first 10 years and
8.5% per annum effective for the next five years, calculate the future value of the total
annuities after 15 payments are made.
(5 marks)

QUESTION 7 (16 MARKS)

A businessman signed a contract that calls for a deposit of RM3000 and for the payment of
RM4000 a year for 7 years. Assume money is worth 10% per annum effective, and use a time
diagram:
a)

Determine the cash value of the contract.

(5 marks)

b)

If the businessman has missed the first three payments, what must he pay at the time the
fourth payment is due to bring himself up to date?
(5 marks)

c)

If the businessman has missed the first two payments, calculate the amount that he has to
pay at the time the third payment is due to discharge him completely.
(6 marks)

QUESTION 8 (14 MARKS)

A mother who just gave birth to her first son decided to deposit X Ringgit Malaysia at the end of
each month, commencing in one months time, so that upon her sons 18th birthday, immediately
after the final deposit, the mother may give him RM200000 for his tertiary education allowance.
a)

Calculate X if the interest rate is 8.25% convertible monthly.

(5 marks)

b)

c)

Alternatively, the mother could deposit Y Ringgit Malaysia at the end of each quarter.
Assuming an interest rate of 8.25% convertible quarterly, calculate Y.
(5 marks)
Explain why Y is greater than 3X ?
(4 marks)
4

SSCM 4863
QUESTION 9 (10 MARKS)
A widow inherited a 4-acre land worth RM175 thousands from his late husband. She sold the land
and invested the money at 12 = 15%.
a)

How many monthly payments of RM2500 would the widow receive?

b)

Calculate the size of the concluding payment by using time 0 as the focal date.

(5 marks)
(5 marks)

______________________________________________________________________________
Formula
1.
2.
3.

= (1 + )
= (1 )
= (1 + )

4.

5.

1(1+)

(1+) 1