OPEN UNIVERSITY of MAURITIUS

Module Name: Financial Mathematics

Tutor: Mr. John Ridge Fok Man

Programme: BSc (Hons) Finance and Taxation / BSc (Hons) Finance and Law INSTRUCTIONS TO STUDENTS – READ PROPERLY THE MODE OF SUBMISSION

Your assignment will be marked on a total of 75 marks.

Submission date: 24 October 2020

Please note that any assignment submitted after the deadline will be marked as fail.

Mode of submission:

Please submit a hard copy and include the name of the Lecturer, Programme Name & your respective Programme Manager on the envelope and a soft copy on: ridgefokman@icloud.com and cc’d assign@open.ac.mu by or before due date. The electronic copy on assign@open.ac.mu is a back-up only and will not be marked.

When you are submitting the hard copy, please submit to the respective tutor on the due date during the time of the session of that tutor. If you wish to submit before the deadline, submit to Learning Resource Centers, Reduit (weekdays open) before due date. Assignments received outside these hours and after the deadline are considered late submissions.

In case the hard copy is received after the due date, marks will be deducted as per OU policy even if the soft copy has been sent on the due date. The soft copy is not considered a submission. The onus is on learner to ensure that the hard copy reaches before/on the due date. The current penalty is 2% per day (weekends and public holidays included) for any assignment received after the due date which the tutor will deduct from the final mark.

POINTS TO REMEMBER WHEN SUBMITTING YOUR ASSIGNMENT:

All assignments submitted should include TRIPLICATE Form (available at OUCC/Reduit)

The Open University of Mauritius will not hold itself responsible or liable for the nonaward of marks if you fail to submit the assignment as per the required mode of submission.

Question 1

a) A company is due to receive a payment of £500,000 from a customer in 6 months’ time. To smooth its cashflows, the company would prefer to receive the payment immediately, and has agreed to transfer its entitlement to this payment to a third party (a discount house) in return for an immediate payment calculated using a rate of commercial discount of 16% per annum.

How much will the immediate payment made by the discount house be?

b) An investor puts £5,000 in a savings account that pays 10% simple interest at the end of each year. Compare how much the investor would have after 6 years if the money was:

i. Invested for 6 years

ii. Invested for 3 years, then immediately reinvested for a further 3 years.

c) £250 is invested in a savings account. The nominal rate of interest convertible monthly for the first 3 months is 18% and the nominal rate of interest convertible quarterly for the next 9 months is 20%. How much is in the account at the end of the year?

d) You have deposited $1000 in a savings account today, and the interest rate is 5% per year. What is the future value of this cash flow 3 years from today

e) The force of interest is given by:

??

0. ?? = 12

Find an expression for the accumulation factor from 0 to t.

(4 + 6 + 3 + 4 + 2 + 11 = 30 Marks)

Question 2

a) A loan of £100,000 is repayable by equal quarterly payments for 4 years. The effective rate of interest is 7% pa.

REQUIRED

I. Find the equal quarterly payment amount.

II. Draw the amortization schedule for the loan repayment.

III. What is the interest portion paid on the 6th payment?

IV. What is the total interest paid after the 12th payment?

b) Give a brief description of the following types of financial investments and list the risks and benefits associated to each type of financial investments

I. Cash

II. Fixed Income Securities

III. Equity

IV. Property

(3 + 14 + 1 + 2 + 10 = 30 Marks)

Question 3

(15 Marks) *** End of Assignment***