Diploma in Finance
BM4012 BUSINESS MATHEMATICS
INDIVIDUAL ASSIGNMENT (AUGUST 2020)
NAME:
SAM WAN XIN
NRIC NO:
020223-08-0684
STUDENT ID:
20033411
SUBMISSION DEADLINE:
23th OCTOBER 2020
Question 1
a) Assuming you are going to deposit RM500 at the end of each month into a mutual fund. The
nominal interest rate of 5% is convertible monthly. Determine the accumulated value in year 10.
You are required to use excel and show the calculation for each month.
[10 marks]
𝑖
FV = PMT ∗ [
= 500 ∗ [
(1+𝑛)𝑛 −1
]
𝑖
𝑛
0.05
(1+ 12 )120 −1
0.05
12
]
= RM77,641.14
The Total Accumulated Value in year 10 is RM77641.14
b) Based on your answer in (a), plot the accumulated value.
[5 marks]
Question 2
If your salary is RM3,000 per month, how much is the accumulated value in your EPF account
after 10 years? Assuming salary increase 5% every year. (Note: You are required to search for EPF
dividend rate from year 2009-2018.)
[15 marks]
YEAR
EPF DIVIDENT RATE (%)
2009
5.65
2010
5.80
2011
6.00
2012
6.15
2013
6.35
2014
6.75
2015
6.40
2016
5.70
2017
6.90
2018
6.15
The Total Accumulated Value in the EPF account after 10 years is RM144335.97
Question 3
A loan of RM100,000 is made at a nominal rate of interest of 8% compounded monthly. The loan
is to be repaid with three payments of RM20,000 at the end of the first year, RM40,000 at the end
of the fourth year, and a final payment at the end of seventh year. Calculate the amount of final
payment.
[7 marks]
NPV = ∑
100000 =
𝐶𝑡
(1+𝑖)𝑡
– C0
20000
0.08 −12
(1+ 12 )
+
40000
0.08 −48
(1+
)
12
+
𝑋
0.08 −84
(1+
)
12
X = RM91662.68
The final amount of payment for the loan at the end of the seventh year is RM91662.68
Question 4
Assuming you are going to graduate in 2 years' time (after completion of your diploma), evaluate
how long it will take to recoup the cost of college. Show all the necessary calculation and
explanation. [ Note: You may need to estimate the salary after diploma and search for the interest
rate that the bank currently offered.]
[15 marks]
Step 1
FV = PMT ∗ [
𝑖
𝑛
𝑖
𝑛
(1+ )𝑛−1
]
(1+0.0025)2−1
= 21025 ∗ [
]
0.0025
= RM42102.56
Step 2
PV = PMT ∗ [
𝑖
𝑛
1−(1+ )−𝑛
𝑖
𝑛
42102.56 = 1000 ∗ [
]
0.0025 −𝑛
)
12
0.0025
12
1−(1+
]
n = 3.52 years
Explanation
The tuition fees of diploma course for 2 years’ time is RM42,050. The cost of college that I needed
to recoup is RM42102.56. Hence, after completion of my diploma course, I assume that my salary
per month is RM2000 and I need to contribute part of my salary in order to recoup back the cost
of tuition fees. Hence, I will contribute 50% of my salary in to my savings account by monthly.
My savings account bank is Maybank which offers an interest rate of 0.25% p.a. The total future
value of tuitions fees which need to recoup by me is RM42102.56. I will deposit RM1000 every
month from my salary into Maybank saving account which offers 0.25% p.a. After the calculations,
the total amount of time that I needed to recoup back the cost of college is 3.52 years (42.29 month).
Question 5
A new minivan was purchased for RM24,400 and currently has an end-of-year book value of
RM20,081.20 after one year of operation.
a) Find the year’s rate of depreciation.
[3 marks]
Book Value = 𝐶(1 − 𝑟)𝑛
20081.20 = 24400 (1 − 𝑟)1
r = 17.7%
b) What will be the end-of year book value of this minivan after two years if the rate of
depreciation remains the same and depreciation is based on the purchase price?
[4 marks]
Book Value = 𝐶(1 − 𝑟)𝑛
= 24400 (1 − 0.177)2
= RM16526.83
c) Construct a depreciation schedule.
Year
1
2
Annual Depreciation
RM4318.80
RM3554.37
[8 marks]
Accumulated Depreciation
RM4318.80
RM7873.17
Book Value
RM20081.20
RM16526.83
Question 6
There are four main types fix asset depreciation methods. Imagine that you are going to manage
an organization and require to choose a best method that best suits your organization. Explain what
are the factors to be considered when making a decision of which method to choose and why is it
important to choose the right method?
[8 marks]
There are four main types of fixed asset depreciation methods which are straight-line method, unitof-production, declining balance method, and sum-of-year digits method. Assume I‘m going to
manage an organization that is a management software company, I will choose the straight-line
method to organize my company. This is because the straight-line depreciation method is the
simplest and consistent method for calculating an asset’s loss of value or depreciation over a period
of time. This method is useful and most common as it helps in dividing the cost of an asset evenly
over the useful life of the asset. This method is suitable using in calculating some assets such as
patents and software.
The factor that needed to be considered when selecting the method is the nature of assets. The
nature of the assets is the first consideration in selecting the depreciation method. It will depend
on the assets whether depreciates by usage or by time passage, estimating the total amount is
required to repair, the cost of the price and whether the assets will be worth its value. Secondly,
obsolescence is also one of the factors because assume the asset is likely unable to use just because
of advanced technology or changes in the taste and preference, so the depreciation method must
be chosen in right otherwise the company will be a burden more on loss. In addition, management
policy is also important in making a decision on the depreciation method. For example, the purpose
of simplicity, the management may decide to choose the straight-line method. Reducing balance
method will be preferred if the burden of depreciation and repairs are going to divide evenly in the
whole expected years. Lastly, the depreciation method depends on the estimated useful life of the
asset is either the depreciable assets is expected to be uses by the business over the period or the
number of productions obtained from the use of the asset.
The importance to select a right method to organize an enterprise is important to record the capital
expenditure to revenue expenditure over the useful life of the asset because some assets of the
market value will be increased in the short-run although the depreciation process continues. Based
on one of the accounting concepts which is the matching principle, revenue earned during an
accounting period has to be matched with the expense associated with earning that revenue.
Depreciation is a concept that plays a vital role in a company’s cash flow. The right method is a
way of self-finance for an organization. Thirdly, also important in a way if decreasing taxes that
the government claims. The government doesn’t have to pay taxes in depreciation which
consequently enlarged the cash flow of the company.