Question

Question 4 (Soalan 47 (C5, CO2, PO12) UNIMAP alumni. Shamsul wants to start a business that requires him to have RMI as the capital expenditure. He approaches 2 hanks to know about their financing scheme. Da A and Bank B both has the same tenure of years and interest rate at 10%. The only die is that Bank A loan charge on a simple interest and Bank B loan charge on a compound interest. m , seorang alumni UniMAP ingin memulakan pera wang memerlukan beliau mempunya moda permulaan sebanyak RM100,000,00 Beliaw menghubunal 2 buah bank tuk mengetahu mengenai pembiayaan mereka lait Bank A dan Bank R kedua-dua bank tersebut mempunyai tempoh pinjaman mo Tahun dan kadar faedah sebanyak 10X Perbezaan ialah Bank A mengenakan faedah mudah terhadap pinyaman berbanding Bank B yang mengenakan kadar faedah secara komput) For each bank, evaluate the followings: Nilaikan perkara berikut untuk setiap bank] (i) The annual interest. [Jumlah faedah tahunan) Total amount due after 5 years. Jumlah bayaran balik selepas 5 tahun) (iii) Illustrate the cash flow diagram for Bank A and Bank B. (Gambarkan gambarajah aliran tunai bagi Bank A dan Bank B.) (iv) Determine which bank offers a better deal. Tentukan bank manakah yang menawarkan tawaran yang lebih baik) (20 Marks/ Markah)

Answer 1

Answer (i) & (ü) (Amount in RM) Bank A Bank B 100,000 100,000 SI No. Particulars 1 Principal Borrowed Interest rate 10% 2 Year 1 3 Year 2 4 Year 3 5 Year 4 6 Year 5 7 Amount due after 5 Years (sum of 1 to 6) 10,000 10,000 10,000 10,000 10,000 10,000 11,000 12,100 13,310 14,641 150,000 161,051

Simple interest is calculated by multiplying the interest rate on the principal amount. In this case, RM 100,000. Whereas, compound interest is calculated by multiplying the interest rate on the amount borrowed along with the interest accrued so far. For example, in case of Bank B, for the year 2 interest of RM 11,000 is calculated by multiplying interest rate of 10% with Principal Amount of RM 100,000 and Interest amount of RM 10,000 for year 1.

Answer (ii) Cash flow Statement (Amount in RM) Year Nature of Payment Bank A Bank B 1 Interest 10,000 10,000 2 Interest 10,000 11,000 3 Interest 10,000 12,100 4 Interest 10,000 13,310 5 Principal & Interest 110,000 114,641 Total 150,000 161,051

Note 1: It has been assumed that the principal payment is made at the end of the term of loan and interest payments are made on annual basis and the interest is not calculated on the basis of reducing balance.

Answer (iv)

Bank A offers a better deal. There are 2 primary reasons to choose Bank A which are as follows:

1. The Annual interest is fixed and does not fluctuate because the cascading effect of interest on interest is absent.

2. The overall interest of Bank A is less compared to Bank B.