Description

Question 1

a) You have recently purchased a 5-room resale HDB flat in Bishan at a transaction price of $700,000. The combined balance of CPF Ordinary Account for both you and your spouse is $200,000. You intend to use this CPF balance for the upfront payment, and use a bank loan for the remaining $500,000 with monthly installment for the next 20 years of tenureship. With so many loan packages offered by different banks in the market, you prefer to adopt a more ‘conservative’ approach in your future assessment and decided to take up a fixed-rate package of 2.0% p.a. compounded monthly. Construct a loan amortization schedule, showing first and last 6 months of payment schedule. (7 marks)

b) You have an existing housing loan with an outstanding amount of $500,000. You would like to refinance this loan for a term of 20 years. Make a study of the offers from DBS and OCBC (consider both fixed and floating rates). Show clearly how you would compare the offers and decide on the best package.  (8 marks)

Question 2

A firm is planning to introduce a new product and has called for bids for the construction of the plant to manufacture the product. The cash flows predicted for the two bids under consideration are given below:

Cash Flow

Year    Plant A             Plant B 

0          -90,000            -50,000

1          45,000            30,000

2          55,000             37,000

3          50,000             28,000

Using the net present value (NPV) approach, with an interest rate of 7% p.a., which plant should the company choose?                                           (10 marks) 

Question 3

a) For a loan of $55,000, with an annual interest rate of 5 % p.a. compounded monthly, and monthly repayments of $1,100. Find the number of payments required to repay the loan. How many years is this?      (5 marks)

b) CompuSystems was supposed to pay a manufacturer $19,000 on a date 4 months ago. CompuSystems is proposing to pay $10,000 today and the balance in 5 months, when it will receive payment on a major sale to the government. Assuming that the manufacturer requires 18% per year compounded monthly on overdue accounts. What should the second payment be?        (10 marks)

Question 4

Briefly describe the Global Financial Crises in 2008 and discuss in what ways asymmetry information played a role in the crises. Keep you answer within 350 words.  (10 marks)