QUESTION 1

(a) In order to prepare to send his child to a medical school in the future, Encik Ishak wants to accumulate RM1.5 million at the end of 15 years. Assuming that his savings account will pay 4.5% compounded annually, calculate how much he would have to deposit if:

i. he wants to deposit an equal amount at the end of each year.
ii. he wants to deposit one large lump sum today.

(b) Ravindran starts a retirement fund at age 21 and plans on depositing equal annual amounts on each birthday, starting at age 21, and ending at age 60. He wishes to have RM3 million at age 60. Chong Beng starts his fund on his 30th birthday. He wants to deposit equal annual amounts on each birthday starting on his 30th birthday and ending on his 60th birthday. Chong Beng wants to also have RM3 million at the age of 60.

If the investment funds earn 8% per annum, calculate the amounts which Ravindran and Chong Beng respectively will have to save each year to meet their goals. Justify the difference.

(c) Selinna is planning to deposit RM10,000 today into a bank account. Five years from today, she expects to withdraw RM7,500. Calculate how much money will be in the account eight years from now if the account earns 5% compound interest every year.

(d) RM9,000 is invested for 7 years and 3 months. The investment is offered at 12% compounded monthly for the first 4 years and 12% compounded quarterly for the rest of the period. Calculate the future value of this investment.

(e) An investment will pay RM500 in three years, RM700 in five years, and RM1,000 in nine years. Calculate the present value of this investment if the compound interest rate is 6% per year.