Simple and Compound interest Portfolio

Paper , Order, or Assignment Requirements

Part A – Calculating your deposit
You have been saving for a long time already and have a deposit which is 20% of the total purchase price. Show, with working out, how much your deposit is.

Part B – Investigate a Loan

Since you have saved up 20% of your total purchase price you will need to borrow the remaining 80%. Calculate the amount you will need to borrow. This will be your loan amount.

You will now research three financial institutions and find a relevant personal loan for each institution. You will need to find:

• The interest rate
• Investigate the appropriate fees involved.
• The difference between secured and unsecured loans

One of your financial institutions must be The Iron Bank which has a nominal rate of 12.8% p.a. and has an application fee of $350 and an account keeping fee of $5 per month.
Assume the compounding frequency is monthly. The loan will be for three years.

Use your research to determine your monthly repayments for all four loan options.
Calculate the total amount of the loan and then calculate the interest that you will pay for each loan. Remember to add any fees, if there are any.

It is a good idea to display your results in a table. Use your results to determine which loan is the best option.

Part C –Saving up for your car
Instead of borrowing money and paying interest to financial institutions, you have a great idea of putting your money in a savings account and paying for your car in cash. Before investigating your options, make a prediction as to how long it will take to save the money that you need.

Research two financial institutions (a large bank and either a small bank or a credit union) and find a relevant savings account in each.

Use this information and your graphics calculator to determine how long it will take for your savings account to reach the desired target if you invest your deposit. State which of the two banks you would choose to invest with, giving a reason.
Part D – Inflation

Use your results from Part C to investigate the effect of inflation has on how much you need to save to buy your car. Assume that the average inflation for the period you are looking at is 3%

Analysis

When analysing your results, the following points could be addressed (this list is not exhaustive):

• Why 20% deposit is required
• What effect do different interest rates have on your loan?
• How do the fees affect your loan?
• List and discuss the advantages and disadvantages of:
o Car loan
o Saving and paying in cash
• Which method of buying a car would be best and why?
• How does the loan being secured or unsecured affect your loan?
• What affect does inflation have on your saving?
• Is there another option to buy your car not investigated here?
• How do your results compare to your predictions? Provide mathematical evidence.
• Discuss the assumptions, limitations, reasonableness and improvements of the investigation
• Reference your results

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