mathematics of finance
Mid-term Assignment Task
This summa)ve assignment is divided in a portafolio of 3 exercises. This is an individual assignment. You have to answer the following ques)ons:
QUESTION 1.
Joseph and his friend Lucy plan to save money for a trip to South America. Their ini)al investment in a bank account that pays 4% compound interest is €350 each, and they expect to collect aQer 3 years. However Joseph can’t wait, and withdraws his accumulated value aQer only 1 year because he wants a new bike. Feeling remorseful, Joseph returns the money to the bank, opening a new account. AQer 3 years, who will have the most accumulated value?
QUESTION 2.
AQer careful analysis, you and your business partner conclude that in order to finance your Robo)cs Start Up, you will need to have €15,000 approximately at the end of 3 years. AQer some research, you find that:
• Bank of America offers you a 3% compound annual discount rate over 3 years
• The European American Investment Bank offers you a compound annual discount rate of 5% over a period of 4 years. • The Italian Commercial Bank offers you a 4% compound annual discount rate over a 2 year period.
Which would be the best bank to invest in? Jus)fy.
QUESTION 3.
The company you work for is losing money and the eccentric owner you work for has found a fron)er science project that could save the company $325,000 each year. The advantages of the project have not been proven and further analysis is s)ll needed. The total amount of the investment is $2,200,000. No)cing this, the Chief Financial Officer (CFO) asks your team of analysts to find an alterna)ve. AQer consul)ng your porcolio, you and your team find a project that costs only $250,000. However, there will be no savings along with this project. Nevertheless, the company will experience an incremental profit of $120,000 every year for the next 20 years.
a) How long will it take to pay back this last investment? b) Which project is the best investment and why?
Your boss is wai)ng. What would you tell him?
FormaliJes:
· Font: Arial 12,5 pts.
· Text alignment: Jus)fied. Submission:
Mid-term: Week 6 – Via Moodle (Turni)n). Submission deadline Sunday 7th March 2021. Weight:
This assignment count as 30% of your total grade in this subject.
These summa)ve assignments evaluate the following learning outcomes:
o Outcome 1: Understand the concept of )me value of money;
o Outcome 2: Define the concept of rate of return of a project in finance;
o Outcome 3: Dis)nguish between simple and compound interest rates;
o Outcome 4: Demonstrate an ability to apply the technical skills related to the course in a prac)cal context; o Outcome 5: Understand the process of investments appraisal and projects classifica)on;
o Outcome 6: Determine percentage calcula)ons and discoun)ng.