Question

MAT301 BUSINESS MATHEMATICS AND STATISTICS

PROJECT

On completion of this project, you should be able to:

CO2 – Apply the compound amount formula to calculate the future value, compound interest, and present value of investments and loans.

CO3 – Identify and solve problems where the present value and future value of annuity formulae can be appropriately applied.

TASK:

Fazlina has just graduated from a university. Currently, she works as a junior executive in a local bank and receives a monthly income of RM2750 nett. She plans her monthly financial as per following:

10% investment on Private Retirement Scheme.

10% investment for emergency purposes; investment made in a savings account at a local bank.

15% investment for wedding purposes; investment made in a savings account at local bank for 3 years.

Maximum of 25% for monthly payment of a car. Apply a car loan from a local bank for maximum of nine years instalment.

Required:

1. Calculate the amount of her investment for wedding purposes at the end of three years and the interest earned. Use the rate of interest in Appendix 1 (Table 1) for your reference. Justify why she should save her money to the particular bank.

APPENDIX 1

Table 1: Interest for savings account offered by local bank.

Bank	Account name	Minimum deposit (RM)	Maximum interest offered (%)
OUB	UOB eAccount	500	3.5 p.a
Affin Bank	Affin Bank Basic Savings	20	2.05 p.a
Affin Bank	Affin Islamic Wealth Saver-i	100	3.08 p.a
AmBank	AmBank TRUE Savers Account	20	2.00 p.a
RHB Easy	RHB Easy-Simpanan Mesra	100	1.35 compounded quarterly
Maybank	Maybank Basic Savings Account	20	1.3 compounded monthly

Answer 1

Monthly Income of Fazlina % of investment for wedding purposes Monthly Investment MR2750 15.00 412.50 Fazlina invests only MR412.5 per month for marriage purposes. So the interest Quotes requires minimum deposit less than MR412.5 shall be considered for investmnet. There for 'OUB Bank's offer is rejected since it requires minimum deposit of MR500. Evaluation of alternatives Minimum Bank Scheme Interest rate Deposit UOB OUB 500.00 3.5 p.a eAccount Not considered because minimum investment is MR 500 which is higher than amount available

Affin Bank Affin Bank 20.00 2.05 p.a Basic Savings Computation of value of investment at the end of first year Assumed that contributions are made at the beginning of every month contribution Month No of months Product (principal) b*c Jan 412.50 4,950.00 Feb 412.50 4,537.50 Mar 412.50 4,125.00 Apr 412.50 3,712.50 May 412.50 3,300.00 Jun 412.50 2,887.50 Jul 412.50 2,475.00 Aug 412.50 2,062.50 Sep 412.50 1,650.00 Oct 412.50 1,237.50 Nov 412.50 825.00 Dec 412.50 412.50 4,950.00 32,175.00 NW 00005 54.97 Computation of Interest 32175*2.05/100)*(1/12) Value of investment at year end (interest + principal) 5,004.97

Investment year Value of investment at the end of Year 1 (a) 5,004.97 Year 2 (b=a*1.0205) 5,107.57 5,004.97 Year 3 (c=b*1.0205) 5,212.27 5,107.57 5,004.97 15,324.81 Total value at the end of Year 3 The investment of year 2 and 3 will have the same value of investment in year 1 at the end of respective years, since there is no change in interest rate

Bank Scheme Minimum Deposit Interest rate Affin Bank 100.00 3.08 p.a Affin Islamic Wealth Saver-i contribution (principal) Month No of months Product 12 Jan Feb Mar Apr May Jun Jul 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 4,950.00 b c 4,950.00 4,537.50 4,125.00 3,712.50 3,300.00 2,887.50 2,475.00 2,062.50 1,650.00 1,237.50 825.00 412.50 32,175.00 Aug Wanaoo Sep Oct Nov Dec 82.58 Computation of Interest 32175*(3.08/100)*(1/12) Value of investment at year end (interest + principal) 5,032.58

Investment year Value of investment at the end of Year 1 Year 2 (b=a*1.0308) 5,187.59 5,032.58 5,032.58 Year 3 (c=b*1.0308) 5,347.36 5,187.59 5,032.58 15,567.53 Total value at the end of Year 3

Bank Scheme Minimum Deposit Interest rate AmBank 20.00 2.00 p.a AmBank TRUE Savers Account contribution (principal) Month No of months Product bic Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 412.50 4,950.00 NWUOVO OOO 4,950.00 4,537.50 4,125.00 3,712.50 3,300.00 2,887.50 2,475.00 2,062.50 1,650.00 1,237.50 825.00 412.50 32,175.00 53.63 Computation of Interest 32175*2/100)*(1/12) Value of investment at year end (interest + principal) 5,003.63

Investment year Value of investment at the end of Year 1 (a) 5,003.63 Year 2 (b=a*1.02) 5,103.70 5,003.63 1 Year 3 (c=b*1.02) 5,205.77 5,103.70 5,003.63 15,313.09 Total value at the end of Year 3

Bank Scheme Minimum Interest rate Deposit 1.35 100.00 compounded quarterly RHB Easy- Simpanan Mesra RHB Easy Since the interest is compounded quarterly, first find the value of ivestment in a quarter It is assumed that the interest rate is annual interest rate compounded quarterly Month Jan feb Mar Investment 412.50 412.50 412.50 1,237.50 Number of mo Product 3.00 1,237.50 2.00 825.00 1.00 412.50 2,475.00 2.78 Computation of Interest 2475*(1.35/100)*(1/12) Value of investment at year end (interest + principal) 1,240.28

If the value of quarterly investment treated as quarterly contribution, we can find the future value (FV) using the following formula FV of annuity = P ((1+r)^n-1]/r Where P=Principal 1,240.28 r=interest 1.35 p.a n=number of quarters 3 years 1.35/4=0.34% per quarter 3*4=12 quarters 2 years therefor value of investment at he end of year 3 1240.28*[(1.0034^12)-1]/.0034 15,164.86

Bank Scheme Minimum Deposit Maybank Basic Savings Account Interest rate 1.3 compounded monthly 6 Maybank 20.00 Since the interest is compounded monthly, we can compute the future value using the FV equation FV of annuity = P [(1+r)^n-1]/r Where P=Principal 412.50 r=interest 1.3 p.a n=number of months 3 years 1.3/12=0.11% per month 3*12=36 months therefor value of investment at he end of year 3 412.5*[(1.0011136)-1]/.0011 15,139.46

Since investment in Affin Islamic wealth saver scheme of Affin Bank fetches more value at the end of year 3, that should be selected