Adms3530 Unit 1 Assignment

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3530 - Assignment #1 AP/ADMS3530 3.0 Assignment #1 Fall 2012 Instructions: ________________________________________________________________ (1) This assignment is to be done individually. You must sign and submit the standard cover page supplied with this assignment. Before you start, please read the note “Writing Style Required for ADMS3530 Assignments” posted on the course web site. Please stick to the writing guidelines suggested in the note. This assignment is due in class on Thursday, 4 October 2012. This assignment must be handwritten. Work that is too difficult to read due to poor handwriting will receive zero credit. You must show your work to receive full credit. This assignment carries a total mark of 100 points. Late assignments…show more content…
Pestano rounds all his answers to the nearest dollar. a) Organize all the information on a time line. (2 marks) b) How much do they give Alpha at the start of her post-secondary education? (3 marks) c) How much do they give Beta at the start of his post-secondary education? (2 marks) d) Do they save enough with this plan to meet their retirement goal? (13 marks) Question 5 – TVM (15 marks) As a York Student you have financed your education in a number of ways. Unfortunately you are currently in a bind and are forced to use your ABC company credit card to borrow some funds. You check your credit card agreement and it states that the interest rate is 18 percent (APR - annual percentage rate), or 1.5 percent per month. Assume you needed to finance $1,000 on your credit card over a period of 1 year (a) Someone who hasn’t taken ADMS3530 maintains that you would pay $180 in interest over the year. Do you agree? If not please provide some supporting calculations to determine the effective interest rate that you are paying and determine the actual interest cost ($’s) over that period of time. (9 marks) (b) You are also aware that the interest rates discussed above were nominal. If the prevailing rate of inflation in the economy was 2%, what is the real rate of interest that you are being charged on this form of borrowing? (6 marks) Question 6 - Bonds (10 marks) Canadian Oil Inc. is planning a bond issue with an escalating coupon rate. The annual coupon rate will be 2% for the first 3 years, 4% for the next 3 years and 6% for the final 4 years. The coupons are paid semi-annually and the bond’s face value is $1000. a) If bonds of similar risk are yielding 5%, what price should you pay for this bond today? (5 marks) b) If at the end of year 3, market interest rates drop to 4% and you decide to sell your bond, what is the annualized return on your investment over the three year investment

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