ASSIGNMENT (ACST603) PRINCIPLES OF FINANCE S2, 2019.

ASSIGNMENT (ACST603) PRINCIPLES OF FINANCE S2, 2019.
INSTRUCTION:
– The assignment is due on midday (12 pm) Friday 11 October 2019.
– Submission detail: Submit the assignment using the link on ilearn. Assignment submission link
will be available close to assignment due date.
– The assignment is out of 25 marks. Assignment is worth 15% of overall assessment.
– Attempt all subparts of both tasks
– We encourage you to discuss the assignment with other students and teachers. Completing the
assignment is meant to be a learning process and will hopefully promote discussion and
thought. But be very careful not to send your assignment file to any other students because the
assessment is an individual base not a group-based assessment.
– Plagiarism is looked upon as a very serious offense by the university and can result in failure
CASE STUDY – REVIEW OF ONLINE BORROWING POWER CALCULATOR
FOR THIS EXERCISE WE PLAN TO ANALYSE / CRITIQUE / REVIEW AN ONLINE FINANCIAL CALCULATOR
THE URL FOR THE CALCULATOR IS:

Borrowing Power Calculator

1. GIVE A BRIEF DESCRIPTION OF HOW A LENDER MAY DECIDE THE SIZE OF AN AMORTISING
LOAN THEY WOULD MAKE TO A BORROWER FOR BUYING REAL ESTATE. THIS CAN BE
COMPUTED USING THE EXCEL PV FUNCTION. WHAT WOULD BE THE INPUTS TO THE EXCEL PV
FUNCTION?
(2 MARKS)
2. GIVE A BRIEF DESCRIPTION OF WHAT THE CALCULATOR PRODUCES?
(3 MARKS)
3. THERE ARE VARIOUS ASSUMPTIONS BUILT IN TO THE CALCULATOR. TO VIEW THESE, CLICK ON
THE “ASSUMPTIONS” LINK. THESE HAVE DEFAULT VALUES BUT THE USER CAN CHANGE SOME
OR ALL OF THESE VALUES. WHAT ARE THESE ASSUMPTIONS? IDENTIFY THEM. HOW
REASONABLE ARE THE FOLLOWING ASSUMPTIUONS?
A. INTEREST RATE BUFFER.
B. MAX % OF AVAILABLE INCOME.
C. LENGTH OF MONTH, NUMBER OF WEEKS AND FORTHNIGHTS IN A YEAR.
(8 MARKS)
4. CHECK WHAT RESULTS YOU GET FROM USING THE ONLINE CALCULATOR USING THE
FOLLOWING SCENARIOS/SETS OF INPUTS IN TABLE 1. DO YOUR RESULTS MATCH THOSE
BELOW FOR THE LOAN SIZE AND LOAN REPAYMENT FOR SCENARIO 1 AND 6 ONLY (3 MARKS).
TABLE 1
Scenario 1 2 3 4 5 6
loan interest
rate 6% 6% 9% 7.5% 7.5% 7.5%
loan term
years 25 25 25 25 20 20
single 0 or
joint 1 0 0 0 0 0 1
no. of
dependents 0 0 0 0 0 2
Salary \$10,000.00 \$10,000.00 \$10,000.00 \$10,000.00 \$10,000.00 \$10,000.00
Frequency of
salary 12 12 12 12 12 12
Partner salary \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00
Frequency of
partner salary 12 12 12 12 12 12
other net
income \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00
frequency
other net
income 12 12 12 12 12 12
total other
loan
repayments \$0.00 \$0.00 \$0.00 \$1,000.00 \$1,000.00 \$1,200.00
frequency
total other
loan
repayments 12 12 12 12 12 1
total credit
card limit \$50,000.00 \$50,000.00 \$50,000.00 \$50,000.00 \$50,000.00 \$24,000.00
maximum %
available
income 50% 50% 50% 50% 50% 50%
annual
expenses \$0.00 \$16,460.00 \$16,460.00 \$16,460.00 \$16,460.00 \$35,562.00
interest rate
buffer 1.50% 1.50% 3.00% 1.50% 1.50% 1.50%
Credit card int
rate charged 22% 22% 22% 22% 22% 22%
extra
dependent
annual
expense \$5,979.00 \$5,979.00 \$5,979.00 \$5,979.00 \$5,979.00 \$5,979.00
loan size \$418,000.00 \$232,000.00 \$163,000.00 \$85,000.00 \$79,000.00 \$113,000.00
loan
repayment \$2,693.18 \$1494.78 \$1367.89 \$628.14 \$636.42 \$910.32
5. HOW COULD YOU USE THE EXCEL PMT FUNCTION FOR COMPUTING THE PAYMENT PER
MONTH RESPECTIVELY FOR AN AMORTISING LOAN? WHAT WOULD BE THE INPUTS TO THOSE
EXCEL FUNCTIONS/ ILLUSTRATE THIS BY IDENTIFYING THE VALUES OF THE INPUTS FOR
SCENATIO 1 ABOVE.
(1 MARK)
CASE STUDY – REVIEW OF ONLINE FINANCIAL DATASET ON STOCK PRICES
FOR THIS EXERCISE WE PLAN TO RESEARCH/ ANALYSE/CRITIQUE /REVIEW AN ONLINE WEBSITE FOR
FINANCIAL HISTORICAL DATA
THE URL FOR YAHOO FINANCE IS:
https://finance.yahoo.com/
1) IN THE SEARCH TOOL TYPE IN PFIZER INC (PFE). EXTRACT THE FINANCIAL HISTORICAL DATA
ON SHARE PRICES FOR PFIZER FROM 30/06/2014 TO 30/06/2019 ON A DAILY BASIS.
(1 MARK)
2) REVIEW THE DATA SET YOU HAVE EXTRACTED AND CALCULATE THE FOLLOWING STATISTICS:
A. FIND THE HOLDING PERIOD RETURN (HPR) FROM 1/07/2014 ONWARDS ON A DAILY BASIS
(CONSIDER DIVIDEND AND STOCK SPLIT ARE REFLECTED IN THE HPR)
(1 MARK)
B. COMPUTE THE STANDARED DEVIATION OF THE HPR PER DAY FOR EACH OF THE YEARS
(STARTING FROM 2/07/2014). WORKOUT THE LOW AND HIGH HPR RETURNS FOR EACH
YEAR. DRAW A LINE CHART AND COMMENT ON YOUR ANALYSIS IN TERMS OF IF ANY
TRENDS / SIMILARITIES / DIFFERENCES OVER THE PAST FIVE YEARS. EXPLAIN YOUR