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BUS400 Understanding Banking System in Business
- Course Code: BUS400
- Course Title: Banking System
- Referencing Styles: Not Selected
- Words: 6500
- University: Seneca College
- Country: CA
Q1. You have recently acquired an investment business. The idea is that you would like to provide services to your clients either with cash or by using their investments. You have three types of services available. Platinum, you will make $45000 over 2.5 years. Gold, you will make $38000 in two years as a service charge. Silver, you will make $30,000 over one year and Bronze, you will make $10,000 over a year. Your clients are willing to invest their money instead of paying the service fee for a certain period and get no interest on it.
For example, instead of paying $10,000 over one year, they are willing to lock down a $100,000 for a year without collecting interest. You would like to create investment plans instead of a service charge for the projects mentioned above. Your clients can earn 6% interest on their own, so your offer must be more intriguing than 6% per year. You are required to calculate how much your clients have to invest over the period specified in the plan with a reasonable interest rate (that you identify) instead of paying the cash. At the end of the time, you will be repaying the money with no interest. In other words, instead of collecting service charge, you are using the interest to pay for that service. Hint (you are using the future Value formula to find out the present value of an investment)
Q2. You are going to purchase a bond that was purchased for 20 years with 5% interest with the fact of $10,000. There are 18 years remained to maturity, and the interest rate is now 0.5%. How much should you be paying for this security?
Q3. What if the interest rate rises to 6% next year, how much will be the value of the bond that you purchased in question 2?
Q4. What is a security bond, and how is it is different than equity bond? What does perpetual mean in the financial realm?