Question

Question 1 (35 marks) Sam, age 32, owns and runs a dessert shop in Shatin. He has just received a notification that he has won the first prize in the Bloom Lottery that gives significant changes on his life goals. He knows that you are a financial analyst in a local bank. He calls you for financial advice on making the following financial decisions.

Answer 1

D. Present Value of annuity= ​

Presentvalueofannuity = [1 – (1+r)-" + r

=[1- (1+.12)^3/.12]

=[ 1- (1.12)^3/0.12]

=[1-.405/0.12]

=[1-11.707]

=10.707

E. -1

EAR = (1+i/n)

i= annual interest rate

n= no. of compounding periods

EAR= (1+0.12/4)^4 -1

=(1+.03)^4 -1

= 1.126-1​​​

= 0.126

F.   

P= A/(1+r)"

Bank A= 200000/ (1+.12)^1 =178571

Bank B= 220000/(1+.06)^1 = 207547

Sam take 1year 2month to double accumulation of his wife.