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1) Suppose you had an interest rate of 12%
1)
| Suppose you had an interest rate of 12%. If you began with $21 CAD, how much would you have at the end of the year if interest was: |
| (a) | Simple? |
| (b) | Compounded quarterly? |
| (c) | Compounded monthly (1/12 of a year)? |
| (d) | Compounded weekly (1/52 of a year)? |
2)Kondwani Billy Hope PLC is financed partly by equity and partly by debentures. The equity proportion is always kept at two thirds of the total. The cost of equity is 18% and the cost of debt is 12 %. A new project is under consideration which will cost K100,000 and will yield a return before interest of k17,500 a year in perpetuity. Should the project be accepted. Ignore taxation.
3)Think about the future of the international monetary system. What (if anything) will be different in five (5) years? 10 years? If you're wondering where to go with this question, think about things like exchange rate regimes (look at historical patterns). You might also ask if the USD will remain the world's reserve currency (will the pandemic affect this?). You might also want to explore crypto-currencies and how they might impact the IMS of the future. Other ideas might be to explore whether or not we'll still have an IMF and what it's role will be. Do some research. Use your imagination but make sure your ideas are supported and have some basis in reality.
Expert Solution
1)
a)simple = 21 (1 + r)^n
= 21(1 + 0.12)^1
= 23.52
b) Componded Quarterly
Anuual Interest to be divided by 4 to get quarterly interest, so 12/4 = 3 per quarter
= 21 (1 + 0.03)^4
= 23.6356
c) Compunded monthly
Anuual Interest to be divided by 12 to get monthly interest, so 12/12 = 1 per month
= 21 (1 + 0.01)^12
= 23.6633
d)Compounded weekly
Anuual Interest to be divided by 52 to get weekly interest, so 12/52 = 0.2307 per week
= 21 (1 + 0.002307)^52
= 23.6733
2)
First we have to find the cost of capital=(weight of equity*cost of equity)+(weight of debt*cost of debt)
weight of equity=2/3=66.67%
weight of debt=1-66.67%=33.33%
Cost of equity=(66.67%*18%)+(33.33%*12%)=16%
The benefit for today=Annual yield/cost of capital=17,500/16%=109,373.63
The profit=109,373.63-100,000=9373.63
Hence, you can accept this project
3)
Here are some points which can help you to answer this question:
1)Study the international monetary system.
2)Study what experts have to sat about the impact of pandemic on world's economy as a whole.
3)Study American ecomnomy and impact of pandemic on USD.
4)Study of current affairs and expert's statements can help you to develope a idea about the subject.
5) Build your own understanding about it and what you think after gathering all the above knowledge.
6) Support your statements with facts and figures. You can also give reference of Historical events and news articles.
7) Construct your answer properly and step by step explanation should be there.
8) End your answer with your idea about the subject of the question in 3-4 sentences.
9)Make sure to mention the possibilities and probabilities of happening of events other then your imagination and idea.
10)You can also mention that what can happen other than what you are saying is likely should happen.
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