KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOLGY

COLLEGE OF ARTS AND SOCIAL SCIENCES

SCHOOL OF BUSINESS

PROGRAMME:
MASTER OF
PHILOSOPHY
YEAR 2(FULL TIME)

COURSE TITLE:
SECURITIES AND
PORTFOLIO
ANALYSIS

COURSE CODE:
ACF 658

INDEX NUMBERS: PG 4007715

STUDENT NUMBER: 20399329

NAME OF STUDENT: ADAM ALIU

PORTFOLIO MANAGEMENT ASSIGNMENT

 Q1 (a) PV = 1000
n = 20years
r = 4%
FV = PV x (1 + r)n
FV = 1000 x (1 + 0.04)20
FV = 2, 191.12
Interest Amount = Total Amount - Principal Amount
= 2,191.12 - 1,000
= 1191.12

(b) If the interest is withdrawn each year, annual interest will be (1000 x 0.04)1 = 40
and then the interest amount earned would be calculated as;
Interest Amount = (1,000 x 0.04) x 20
= 800
(c) The answers are different because with the (a) the interest is left to earn further
interest whereas with the (b) the interest is withdrawn without allowing it to generate
further interest. GHS 391.12 (1191.12- 800) is the further interest earned on interest.

Q2. Purchase Value (Present Value) = 20

Sales value (Future Value = 35
n= 10 year
FV = PV x (1 + r)n
35 = 20 x ( 1 + r)10

35 = (1 + r)10
20
1.751/10 - 1 = r

r = 0.05755
r = 5.8%
r = 6%

Q3. (a) PMT = 1500

r = 10%
n = 20 years
Future Value FV of annuity FV = PMT x ( 1 + r )n 1
r
1500 x (1 + 0.10)20 1
0.10
= 1500 x 57.2750
= 85, 912.50
 (b) FV = 85 912.50 x (1 + 0.10)5
= 85 912.50 x 1.61051
= 138,362.94
Additional Amount earned = 138,362.94 85 912.50
= 52, 450 .44

(c) FV = 1500 x (1 + 0.10)25 1

0.10
FV = 1500 x 98.3471
FV = 147,520.59
Additional Amount Earned = 147,520.59 85,912.50
= 61, 608.09

Q4. (a) Future Value FV = 100 000

r = 8%
n = 10 years
PMT =?
FV
PMT = (1 + r) x ( (1 + r)n - 1 ) / r

= 100, 000
(1 + 0.08) X ((1 + 0.08)10 1)/0.08
= 100, 000/15.6455
= 6,391.62

Future Value of Ordinary Annuity (Payment at the end of the year)

PMT = FV
PMT = ((1 + r)n - 1 ) / r
= 100, 000
((1 + 0.08)10 1)/0.08

= 100, 000/14.4866
= 6,902.95
(b) If the expected yield is 5%
Future Value of Annuity Due (Payment at the beginning of the year)
FV
PMT = (1 + r) x ((1 + r)n - 1 ) / r

100,000
PMT = (1 + 0.05) x ((1 + 0.05)10 - 1) / 0.05
= 100, 000/13.2068
= 7571.86
= 7572
Future Value of ordinary Annuity
FV
PMT = ((1 + r)n - 1 ) / r
= 100,000
{(1 + 0.05)10 1}/0.05

= 100,000/12.5778
= 7950

Q5. Present value of Annuity

PV =PMT x {1- (1 + r)-n}
r

PMT = [1-(1+0.06)-20]

= 10,000 (11.47)
= GH114,700
The present value is 114,700 which is less than 120,000.The investor should no buy
Q6. PMT =35,000, r =4%, n =20 FV = 35,000
FV = 35,000(1.0.4)20
= 35,000(2.19)
= GH76, 689.31

At 8%
FV = 35,000(1+ 0.08)20
= GH163,133.50
150,000 is not sufficient

Q7. PV =200,000- 30,000 = 170,000

n = (85-65) =20,
r = 8%
PMT = 170,000
(1-(1.08)-20
0.08

170,000/9.81
= GH17,314.87

Q8. (a) PMT =2000, r =7%, n = 20 years

FV = PMT x (1 + r) x ((1 + r)n - 1 ) / r

FV = 2000 x (1 + 0.07) x [ ( 1 + 0.07)20 1 ]/0.07

= 2000 x (43.86)
=GH87,730.35
(b) rate at 10%
FV = 2000 x (1 + 0.10) x [ ( 1 + 0.10)20 1 ]/0.10
= 2000 x 63.0025
= 126, 005
Additional Funds = 126, 005 87,730.35
= 38, 275
(c ) PMT = 126,005
(1 + 0.10) x [1- (1 + 0.1)-25) / 0.10
= 126, 005/9.9847
= 12,619.75

Q9. At 6%; Future Value of 900 is GHS 900

Future Value of 150 is
= 150 x(1 + 0.06)5 1
0.06
= 150 x 5.6371
= 845.56
At 6%, GHS 900 should be accepted
At 14%; Future Value of 900 is GHS 900
Future Value of 150 is
= 150 x (1 + 0.14)5 1
0.14
= 150 x 6.6101
= 991.52
At 14%, GHS 150 should be accepted. The answers are different because the rate of
return has been increased.

Q10. (a) Annual Compounding; FV = 100 x ( 1 + 0.12)1

= 112
Semi-annual compounding; FV = 100 x (1 + .12/2)2
= 112.40
Monthly Compounding; FV = 100 x ( 1+ 0.12/12)12
= 112.70
(b) Annual Compounding; PV = 100
(1 + 0.12)1

= 89.29
Semi-annual Compounding; PV = 100
( 1 + 0.12/2)2
 = 89

Monthly Compounding PV = 100

(1 + 0.12/12)12
= 88 .70

Q11. Tom; FV = 2000 x (1 + 0.09)20 1

0.09
= 2000 x 51.1601
= 102,320.24

Joan; FV = 2000 x (1 + 0.09)20 1 x (1 + 0.09)

0.09
= 2000 x 55.7645
= 111, 529.02

Q12. FV= 100,000, PV = 35,000 r = 9%, n =?

100,000= 35,000(1-(1+ 0.09)n

100,000/35000 = (1+0.09)n

28,571 =1.09n

n = In28, 571/In 1.09

= 12.18

= 12 years

If he dies within 10years then the value of the investment is

FV = 35,000(1+0.09)10

= GH82,857.73

= GH82,858.00

Q13. PV = 12000 x 1- (1 + 0.09)-10

0.09
= 12000 x 6.4176
= 77,012
The payment value of the annuity payments is 77, 012, if the annuity cost 75, 000 then
the annuity is underpriced.
Q14. PV = 60 x 1- (1 + 0.09)- 7
0.09

PV = 60 x 5. 0329

= 301.97

Present Value of 1000 to be received in 7years time

PV = 1000 X ( 1 + 0.09)-7

PV = 1,000 x 0. 5470

PV = 547. 03

Total Present Value = 301.97 + 547.03

= 849

P 0 [1(1+r )n]
Q15. Future value factor Annuity (FVan) = r

Where po = present value,

r = rate of interest
n = number of years
For the investment of GHS 1000 each year for 10yeras
1000 (1.1) 101
Fvan = [ 0.1 ]

F Van = 1000 (15.937)

FVani = 15937.42
For the investment of GHS 2000 each year for 10yeras
2000 (1.1) 101
Fvan = [ 0.1 ]

FVan ii = 2000 (15.9374)

FVan = 31874.8
Total investment = 15937.42 + 31874.8 = 47812.22
 P 0 [1 (1+ r )n]
Q16. Present value of Annuity = = r

10000 [1( 1.08 ) 6] 5000 [1( 1.08 ) 6]

PVan = 0.08 + 0.08 = 1000(4.622879) +

5000(4.622879)
PVan = 46228.79 + 23114.39 = 52246.34

Q17. Population growth at 5% = 5000 (1.05)10 + 5000 (1.05)15 + 5000 (1.05)20

= 8144 + 10395 + 13266
Per capita expenditure growth at 7% = 300 (1.07)10 + 300 (1.07)15 + 300 (1.07)20
= 590 + 828 + 1161
Total budget after 10, 15, and 20 years are (8144 x 590), (10395 x 828), (13266x
1161)
4804960, 8607060,
15401926

P 0 [1 (1+ r )n] 275 [1( 1.1 ) 5]

Q18. Alternative A. PVan = r = 0.1

275 (3.791) = 1042.466

300 [1( 1.1 )2] 250 [1( 1.1 ) 2]
Alternative B. 0 .1 + 0.1

300 (1.7355) + 250 (2.0552)

520.65 + 513.82 = 1034.47

Q19. Loan amount is 150000, down payment is 50000, and balance is 100000
pv 100000
Annual Payment (PMT) in 20years at 8% = 1(1+r )n = 1( 1 .08 )20 ,
r .08
100,000
= 9.8181
 PMT = 10,185.23
100000
100,000
For 25years at 9% PMT = 1( 1 .09 )25 = = 10180.62
9.8225
.09

At 25years, PMT = 10180.62.

The difference in the annual payment is 10185.23 10180.62 = 4.59

Q20. PV = 165000, PMT = 30000

P MT [1( 1+r )n] 30000 [1( 1.06 )n]
PVan = r , = 165000 = .06

165000 1 (1.06)n
30000 = 0.06 =

5.5 x .06 = 1 (1.06)-n, = 0.33 = 1 (1.06)-n

0.33 1 = - (1.06)-n , = 0.67 = - (1.06)-n

log0.67 log (1.06)n
Log -0.67 = log (1.06)-n = log1.06 = (1.06)

0.1739
0.0253 = -n, n = 6.87years

Q21. PV = 107,500

r = 8%

PMT = 18,234

n = 10years

PV
PMT = (1- (1 + r)-n ) / r

107, 500
PMT = (1- (1 + 0.08)-10 ) / 0.08
 = 107,500/6.7101
= 16,021
He can only withdraw GHS 16,021.
To calculate the rate of return to earned GHS 18 324
107,500 = 18,234 x 1 {1-(1 + r) - 10 / r}

PVFVr% 5 = 5.8956
From the Present Value Annuity Factor table, 11% will earn 18, 234

Q22. FV = 26 000 (1 + 0.07)8

= 44, 672.84
FV = 100,000 44 672 .84 = 55, 327.16

55,327.16
PMT = ((1 + 0.07)8 - 1) / 0.07
= 55, 327.16/ 10.2598
= 5,392. 61
He must set aside GHS 5392.61 at the end of each year for 8years
If the investment is made at the beginning of each year then;
55,327.16
PMT = ( 1 + 0.07) x ((1 + 0.07)8 - 1 ) / 0.07

PMT = 55, 327.16/ 10.9780

= 5, 039.83
He must set aside GHS 5,039.83 at the beginning of each year for 8years

Q23. (a) PV = 325,000, r = 8%, n = 20 PMT = ?

325,000
PMT = ( 1 + 0.08) x ((1 + 0.08)20- 1 ) / 0.08
 = 325, 000 / 10.6036
= 30,650
Calculation of amount left
325,000 30,650 = 294,350
Amount Left = 294, 350 (1.08)
= 317,898. 00

(b) Calculation of amount left

= 325,000 16, 250
= 308, 750
Amount left = 308,750 x ( 1.08)
= 334, 450

Q24 PV = 60,000

60000(1+.05)18
FV =

= 144,397.15
144,397.15
PMT = ((1 + 0.10)18 - 1) / 0. 10
=
144,397.15/45.5991
= 3,166.66
He must invest GHS3, 166.66 every year for 18 years.

Q25. (a) PV = 20, 000, r = 4%, n = 4years

20,000
PMT = (1- (1 + 0.04)-4) / 0.04
PMT = 20,000/3.6298
= 5509.94
(b) After the rebate ,PV = 20000- 2000= 18,000, r = 10%, n = 4years
18,000
PMT = (1- (1 + 0.1)-4) / 0.1
PMT = 18,000/3.1698
= 5678.59
The option b (5678.59) is better since it results to lower yearly repayment.