finance Assignment

Major Assignment

CMF201 – Business Finance

Semester 2, 2015

Maximum Marks: 35

(Please show your calculations clearly)

Instructions:

Please use excel spreadsheet wherever appropriate. If you use excel spreadsheets, please copy and paste them into MSWord. Once you have completed the assignment, it needs to be lodged in the Assessments section of Learnline. Your assessments must be lodged using MSWord. PDF, Excel or paper copies will not be accepted. Required:

1) Make sure your entire assignment can be readily printed on A-4 paper in portrait (preferred) or landscape format with appropriate page breaks. Do not have a portion of a “wide” worksheet expand beyond 1 page.

2) Make sure your name and student number are on every page of your submission.

3) Please show all your calculations clearly.

Ethics: This is not a group assignment; it is an individual assessment. Your solutions will likely be different from other students. If portions of your assignment are copied or very close to copying, all parties will be penalised for copying. Copying would be considered plagiarism and CDU has strict policies. It is up to you to keep your assessment confidential.

Q. 1 (Total Marks: 13)

Timothy Smith is looking to purchase a Mercedes Benz Roadster, which has a total cost of $340,000. Timothy plans to deposit $130,000 and will pay the rest by taking on a 7.5% 5-year loan.

Required: a) What is the monthly payment on this car loan?

(Marks: 7.25) b) Prepare an amortisation table.

(Marks: 4.75) c) What is the loan balance at the end of year 3?

(Marks: 1)

(Round the numbers to the nearest $) Q. 2 (Total Marks: 11) Gary Dahl will be 30 years old next year. He comes up with a plan to save for his retirement at 67 years of age. Currently he has saved $40,000 in a balanced superannuation account earning 8.3% annually. He also has invested an inheritance of $50,000 in a money market account earning 5.25% and plans to leave it as part of his retirement savings. He has set himself a retirement target of $2,000,000. Required:

a) How much must be deposited in his superannuation account each year to reach his target?

(Marks: 8.75)

b) If Gary is earning $60,000 a year and, in addition, 9% of his salary is deposited into his superannuation by his employer, would Gary have to make further contributions to enable him to reach his goal? Give reasons for your answer.

(Marks: 2.25)

Q. 3 ( Total Marks: 11)

Explain in your own words:

a) What is the security market line (SML)?

(Marks: 3)

b) What does portfolio theory predict will happen when disequilibrium of the SML is observed?

(Marks: 8)