Bobby’s financial Assets - GenTech Ltd Case Study - Finance Assignment Help

Assignment Task :

Task

1. What will be the value of Bobby’s financial assets when he retires at age 65?   Present all calculations to support your answer. 

2. What will be the annual pension amount that Bobby will receive until age 83?  Returns are compounded annually at year end. Present all calculations to support your answer.  

Question 2 

This question relates to Topic 1 and LOs 2, 3 and 5.

a.     Tony is applying for a new home loan.  He wishes to borrow $250,000 and make his repayments monthly. The interest rate the bank has quoted him is 4% per annum and the inflation rate is 3% pa.                                                                                                                   

1. Is this the real rate of interest or the nominal rate of interest? 

2. Explain the difference between the real rate of interest and the nominal rate of interest.  

3. Calculate the real rate of interest and the nominal rate of interest for Tony.

4. Is it possible for the real rate of interest to equal the nominal rate of interest? Explain.  

b. The Reserve Bank of Australia has announced a 0.25% decrease in the cash rate.  What effects does this have on the economy and the financial markets?  Provide examples of who might benefit from this decrease and those who may not.

Question 3 

The question relates to topics 1 - 5 and LOs 5 and 6.

a.     GenTech Ltd needs to save $50 million to expand its production lines in six years’ time. There are three investment options to consider:

• ABC bank: monthly payments due at the end of each month.  The interest rate is 3.5% p.a. compounding monthly.

• XYZ bank: annual payments due at the end of each year.  The interest rate is 3.55% p.a.

• CDC bank: payments to be made at the end of year 2, 4 and 6.  The interest rate is 3.56% p.a.

i.   Calculate the payments for each of these options, (show all workings). 

ii.  Indicate which one you prefer.  You will need to justify your decision  

b.    i.    Is ‘risk’ a bad thing? Define risk in terms of investment.  

ii   Explain the Australian dividend imputation credit system and how it applies in Australia. Include an analysis of how the receipt of franking credits will result in differing returns for Australian resident and international investors.  Provide an example.     

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