Consider an investment of $1,000. (a) Using a financial calculator, calculate the time taken for this investment to

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BANK 2005 FINANCE AND INVESTMENT
EXTERNAL AND INTERNAL STUDENTS – STUDY PERIOD 5,
2014
ASSIGNMENT 1 INFORMATION General Assignment Details Completion – Individual Basis
This assignment must be completed and submitted on an individual basis. The assignment
answers must be submitted via Learnonline. You need to include your name and student ID
number on the first page of your assignment document. For internal students, the first page of
your assignment document also needs to show your tutorial time. Do not include an
assignment cover sheet and do not include the assignment questions in your assignment
submission. Other Assignment Details
Show all working in assignment calculations. In questions involving the use of a financial
calculator, you are required to show all financial calculator steps in your answer. If you
answer a question using a financial calculator, you do not need to detail the equivalent
mathematical formula. Please refer to the Course Outline for other details in relation to this
assignment task. Question 1 (Total marks for this question = 14 marks) Consider an investment of $1,000.
(a) Using a financial calculator, calculate the time taken for this investment to double in
value to $2,000 at an interest rate of 2% per annum compounded annually. Round
your answer to the nearest year. (1 mark)
(b) Using a financial calculator, calculate the time taken for this investment to double in
value to $2,000 at an interest rate of 5% per annum compounded annually. Round
your answer to the nearest year. (1 mark)
(c) Using a financial calculator, calculate the time taken for this investment to double in
value to $2,000 at an interest rate of 7% per annum compounded annually. Round
your answer to the nearest year. (1 mark)
(d) Using your answers to (a), (b) and (c), write down a simple mathematical formula for
doubling time D years in terms of the annual interest rate i % with annual
compounding. Do not use the logarithmic (log) function in your formula. Your
formula should be valid for low interest rates. Illustrate that your formula works for
i=2, i=5 and i=7. (6 marks)
(e) Using your answer to (d), write down a simple mathematical formula for quadrupling
time Q years in terms of the annual interest rate i % with annual compounding. Your
formula should be valid for low interest rates. (2 marks)
(f) Using your answer to (e), calculate the time taken for an investment to quadruple in
value for i=2, i=5 and i=7. (3 marks)
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Question 2 (Total marks for this question = 8 marks)
(a) Find and show the individual income tax rates in Australia for Australian Residents
for the 2014-2015 financial year. Give a reference in your references list at the end of
your assignment. (3 marks)
(b) Using your answer to (a), calculate the income tax payable by an individual with a
taxable income in the 2014-2015 financial year of : (i) $19,000 (ii) $37,000
(iii) $60,000 (iv) $100,000 (v) $190,000. (5 marks)
Note for Question 2 : Do not include the Medicare Levy and any other levies and do not
include rebates and tax offsets in your calculations. Question 3 (Total marks for this question = 18 marks)
Suppose $1,000 is invested for 1 year at an interest rate of 4.5% per annum compounded.
Assume there are 365 days in 1 year.
(a) Using a financial calculator, calculate the future value (FV) to the nearest cent (that
is, to 2 decimal places) if the compounding is performed : (i) annually (ii) 6 monthly
(iii) quarterly (iv) monthly (v) daily (vi) hourly (6 marks)
(b) Calculate the future value (FV) to the nearest cent with continuous compounding.
Explain why the answer is the same as in (a)(vi). (3 marks)
(c) Using a financial calculator, calculate the effective annual interest rate as a percentage
to 4 decimal places if the compounding is performed : (i) annually (ii) 6 monthly
(iii) quarterly (iv) monthly (v) daily (vi) hourly (6 marks)
(d) Calculate the effective annual interest rate to 4 decimal places with continuous
compounding. Explain why the answer is the same as in (c)(vi). (3 marks)
Question 4 (Total marks for this question = 10 marks)
Consider a machine which an Australian company bought for $50,000 five years ago. The
machine has an expected life of 10 years and an expected salvage value of zero. The company
uses straight-line depreciation.
(a) Calculate the amount of annual depreciation. (2 marks)
(b) Calculate the current book value of the machine. (2 marks)
(c) State the current company tax rate in Australia. (1 mark)
(d) If the machine were sold today for $10,000, what would be the taxes associated with
the sale? (2 marks)
(e) If the machine were sold today for $25,000, what would be the taxes associated with
the sale? (1 mark)
(f) If the machine were sold today for $40,000, what would be the taxes associated with
the sale? (2 marks)
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Question 5 (Total marks for this question = 10 marks)
Write a short essay discussing the origins of the Global Financial Crisis (GFC) and also draw
a table showing Australia’s official interest rate known as the cash rate from August, 2007, to
August, 2014. Explain why the cash rate has been held at a record low of 2.5% per annum for
the most recent one year period. Remember to give references in your references list at the
end of your assignment.
Total Marks for Assignment = 60 Marks