Question

You are the proprietor of a medium sized business called ‘Must Buy’, specialized in selling household items. Due to popular demand, you are considering opening an outlet in the neighbouring town. You plan to have an investment horizon of 5 years. After thorough analysis and evaluation and seeking assistance from your accountant brother, you gather the following information:

 Total investment to establish the outlet would be around $180,000.

 60% of the total investment value will be contributed by you.

 After sourcing the market, Kontiki Finance is willing to lend you the balance of the amount needed at the best rate of 4% p.a. fixed for the first year and 5.5% p.a. variable rate thereafter until maturity, compounded annually.

 Annual ordinary repayments will be made as per your agreement with Kontiki Finance.

Required: (Show all working else penalties will apply. Exchange rates should be rounded off to 4.d.p., whereas all other calculator-values are to be rounded off all to 2d.p. Clearly label your answers with the corresponding question number and/or its associated parts.)

a. Calculate the annual instalment amount for the first year. (2m)

b. Calculate the annual instalment amount that will be paid in the second year. (4m)