Mathematics of Finance
Document.
BCO126 Mathematics of Finance Task brief
BCO126 Mathematics of Finance
Assignment: The assignment is worth 100% of your marks for this subject.
Deadline and submission: Your assignment must be submitted via Turnitin on Moodle before 23:59 on
Thursday 3rd Septemer 2020.
You must provide an explanation of your results in all your answers.
1- Prove, by finding the FV, which of the following options is the most interesting one:
a) To invest 12,000 in a bank account that offers an annual simple interest rate of 10%, for 2
year.
b) To invest 12,000 in a bank account that offers an annual compound interest rate of 10%, for 2
years
The bank pays interests once per year
(20 points)
2- Prove, by taking all the values to the same point, what is the best option:
a) To receive 10,000 today?
b) To receive 13,300 in 3 years?
c) To receive 19,900 in 9 years?
The annual compound interest rate is 10%, and interests are paid once per year
(20 points)
3- A Company has been offered a five years contract to provide components to a car manufacturer. If
they accept that project, there will be an initial investment of 200,000 EUR, an extra expense of
50,000 EUR in year 3, and yearly revenues of 60,000 EUR from year 1 onwards. The company
wishes to gain a 10% at least (use this as a discount rate). What is the NPV of this operation?
(20 points)
4 A Company has been offered the possibility of entering two projects:
a) A five years project that consists on an initial investment of 80.000 EUR and a set of 10 yearly
revenues of 10,000 EUR from year 1 onwards
b) A ten years project that consists on an initial investment of 100,000 EUR and a set of 7 yearly
revenues of 20,000 EUR from year 1 onwards.
From the point of view of the Payback Period, what is the best project? (20 points)
5) How much you should invest today in a financial product that offers a 12% interest rate (compounded
yearly) in order to be able to afford four yearly payments of 12,000 EUR per year, the first one of them to be
done in 6 years ?(20 points)
