Q.1
Timothy Smith is looking to purchase a Mercedes Benz Roadster, which has a total cost of $340,000. Timothy plans to deposit $130,000 and will pay the rest by taking on a 7.5% 5-year loan.
Required:
a) What is the monthly payment on this car loan?
b) Prepare an amortisation table.
c) What is the loan balance at the end of year 3?
Q.2
Gary Dahl will be 30 years old next year. He comes up with a plan to save for his retirement at 67 years of age. Currently he has saved $40,000 in a balanced superannuation account earning 8.3% annually. He also has invested an inheritance of $50,000 in a money market account earning 5.25% and plans to leave it as part of his retirement savings. He has set himself a retirement target of $2,000,000.
Required:
a) How much must be deposited in his superannuation account each year to reach his target?
b) If Gary is earning $60,000 a year and, in addition, 9% of his salary is deposited into his superannuation by his employer, would Gary have to make further contributions to enable him to reach his goal? Give reasons for your answer.
Q.3
Explain in your own words:
a) What is the security market line (SML)?
b) What does portfolio theory predict will happen when disequilibrium of the SML is observed?