MGT201 Financial Management assignment no 1 idea solution spring fall November 2011

[Vuhelper]

“Time Value of Money”
Mr. Hammad is a salaried person and thinking to save for the education of his daughter. In this concern he is considering two diverse saving plans for ten years.

�� First plan requires a deposit of Rs 5,000 every six months with annual interest rate of 6.5 percent, compounded semiannually.
�� However, under the second plan, he has to deposit Rs 10,000 every year with Interest rate of 7.5 percent compounded annually.

Keeping in view the given situation, you are required to answer the following questions:

a). What will be the future value of first plan at the end of 10 years?
b). What will be the future value of the second plan at the end of 10 years?
c). You are required to analyze that which plan would be suitable for him while keeping in view his major concern: ‘The value of plan at the end of 10th year’.
d). What would be the change in your decision if the interest rate on second plan is also 6.5 percent?

(Show complete calculations and provide all formulas as they carry marks)

Schedule
Opening Date and Time November 03, 2011 At 12:01 A.M (Mid-Night)
Due Date and Time November 11, 2011 At 11:59 P.M (Mid-Night

[iqra alvi]

Hy any one provide me the idea of MGT201 assignment on my id angle7399@yahoo.com plzzzzz kl last date ha....

[Xpert]

asa
is this the correct assignment?

[Vuhelper]

Plan A
First plan requires a deposit of Rs 5,000 every six months with annual interest rate of 6.5
percent, compounded semiannually
Answer of part A
Future Value = .PMT [((1 + I )n – 1) / i]
Future Value = 5000[((1 + .0325)20- 1) / .0325]
Future Value = 5000[((1.0325)20 – 1) / .0325]
Future Value = 5000[(1.895837924 – 1) / .0325]
Future Value = 5000[.895837924 / .0325]
Future Value = 5000[27.56424382]
Future Value = 137821.2191

Plan B
However, under the second plan, he has to deposit Rs 10,000 every year with Interest rate of 7.5 percent compounded annually
Answer of Part B
Future Value = .PMT [((1 + I )n – 1) / i]
Future Value = 10000[((1 + .075)- 1) / .075]
Future Value = 10000[((1.075)10 – 1) / .075]
Future Value = 10000[(2.061031562– 1) / .075]
Future Value = 10000[1.061031562/ .075]
Future Value = 10000[14.1470875]
Future Value = 141470.875

c). You are required to analyze that which plan would be suitable for him while keeping in view his major concern: ‘The value of plan at the end of 10th year’.
Answer of Part C
2nd plan is suitable for him while keeping in view his major concern

d). What would be the change in your decision if the interest rate on second plan is also 6.5 percent?
Answer of Part D
“If interest rate of 2nd plan 6.5 percent then I will chose Plan A because using 6.5 percent interest rate the FV for Plan B will be 134944.22, which is lower than plan A”