Four years ago, you set up a fund to undertake a two year Masters programme in Canada. The cost of this programme including living expenses was estimated at that time to be $66000. The average inflation rate for Canada is 4% per annum. Your plan was to invest for five years to achieve this goal. You have decided to borrow the remaining funds after the five years if you do not have sufficient funds in your account. Every month, you contributed $800 to meet this objective. The funds were invested in a mutual fund with an asset allocation of 80:20 in stocks and bonds respectively. The return on the mutual was 14% per annum for each year. At the end of the fourth year, you decided to invest the funds in treasury bills for another one year. You therefore called your investment manager to transfer all the funds into treasury bills. Your instruction to the broker was to purchase 91-day treasury bills to be rolled over for a year. The discount rate for the 91-day Treasury bill is given as 21%.
i. How much would it cost you to pay for your education at the end of year 4?
ii. How much would you have in your Education Fund account at the end of year 4?
iii. What may have informed the decision to invest in the mutual fund and subsequently treasury bills?
vi. . How much will the investor be debited with to fulfill his request to purchase Treasury Bills? Assume that the amount in the mutual fund is the face value of the Treasury bill.
v. How much will you earn in terms of interest rate (p.a.)?
vi. How much will you have in your account after 91 days? What about 182 days, 273 days and 364 days respectively?
vii. Would you need a loan to undertake your education in Canada? If so, how much?