1

1.

Sol:

a) Present value of Annuity = 

here,

C = cash flow per periods, = $5000

i = interest rate =7% or 0.07

n= number of payments =1 year

so, Present value of Annuity(after 1st year) = $5000 * [1-(1+0.07)^-1 ] / 0.07

= $5000 * [1-(1/1.07)] /0.07

= $5000 * [1- 0.9345] / 0.07

= $5000 * 0.0655/0.07

= $4678.57

b) Full amount required to purchase home = $700000

Amount available as deposit = $100000

Required fund from Bank as loan(P) =($700000 - $100000) = $600000

Interest rate(i) = 7% or 0.07

Period(n) = 20 years

Calculation of Monthly Payment:

Monthly payment formula

A = P * [ i (1+i)ⁿ  / (1+i)ⁿ  - 1]

Monthly Payments(A)= $600000 * [0.07 (1+0.07)²⁰ / (1+0.07)²⁰ -1]

A = $4651.79

Calculation of interest component of the 25^th repayment:

the interest component of the 25^th repayment = $3,327.45

Calculation of Balance Owe to the bank after 2nd year:

2.

Private banking institutions are providing their clients with a higher amount of confidentiality and they will not reveal the nature of the transaction to any outsider so due the clause of the confidentiality the money which are deposited by investors into these private banks are highly confidential in nature and hence these banks are prone to money laundering because there can be illegal money which can be channelized into the system and invested and deposited into the private banks and hence, the confidentiality clause will be prohibiting the outsider to have access to the information about source of the money, & Money laundering becomes easier in private banking.

Private banking institution need to adopt anti money laundering rules which will be required in this institution to reveal the nature of the transaction and they can help the authorities in order to connect to the money trail and they should be trying to abide by all the rules and regulation regarding the disclosure of the source of the money which had been set by the government so depositors should be required to mention the source of the money before depositing into the bank so there will be a better transparency and money trail would be established in case of a fraud.

Private banking need to adopt better disclosure policies and it also needs to check source of money and it will be helping them in order to check with the trail of the money and establish the high level of transparency and maintain a balanced confidentiality so that interest of various parties are protected and hence private banking system are needed to abide by laws and regulation and they should be accommodating the regulatory agencies and they should not be countering the regulatory agencies and providing them support in case of a fraud and money laundering, and they can prevent themselves from shady transactions as well and they can be active in reporting the transactions to the regulatory authorities at times.

3.

Answer 3

if retirement at age 62

years from age 62 to 92= 30

number of months of withdrawal =30*12 = 360

annuity withdrawal per month =1300

monthly rate (i) =4%/12 =0.003333333333

present value at age 62 (time 0) :

present value of annuity formula = P*(1-(1/(1+i)^n))/i

=1300*(1-(1/(1+0.003333333333)^360))/0.003333333333

=272299.6126

present value for withdrawals starting from age 62 is 272299.6126

if retirement at age 67

years from age 67 to 92= 25

number of months of withdrawal =25*12 = 300

annuity withdrawal per month =1800

monthly rate (i) =4%/12 =0.003333333333

present value at age 67 (time 60) :

present value of annuity formula = P*(1-(1/(1+i)^n))/i

=1800*(1-(1/(1+0.003333333333)^300))/0.003333333333

=341014.4694

This is value at t60 or future value =341014.4694

number of moths gap from today = 60

present value formula = FV/(1+i)^n

=341014.4694/(1+0.003333333333)^60

=279291.9088

present value for withdrawals starting from age 67 is 279291.91

if retirement at age 70

years from age 70 to 92= 22

number of months of withdrawal =22*12 = 264

annuity withdrawal per month =2300

monthly rate (i) =4%/12 =0.003333333333

present value at age 70 (time 96) :

present value of annuity formula = P*(1-(1/(1+i)^n))/i

=2300*(1-(1/(1+0.003333333333)^264))/0.003333333333

=403380.6545

This is value at t96 or future value =403380.6545

number of moths gap from today = 96

present value formula = FV/(1+i)^n

=403380.6545/(1+0.003333333333)^96

=293070.3901