Financial Mathematics and Business Statistics: Individual Coursework

Instructions

This coursework tests your basic financial mathematics and statistical modelling skills, using spreadsheet software (Excel – formulae, financial maths, graphical features, Data Analysis and Solver tools) as well as your awareness of the reality of how financial products work. Your answers are to be presented in an essay/report format, for which you will use a word processor. In writing your report, please:

·         state and explain all assumptions, on which your answers are based;

·         clearly indicate your answer/recommendations;

·         no evidence of use of excel will result in a fail mark for this element of the coursework component of your mark;

·         support any answers with the appropriate calculations to arrive at the answer;

·         include selected screens of formulae underlying computed values. Failure to demonstrate you have created appropriate formulations on excel will be severely penalised. Despite the fact that you will be submitting the Excel file as well, your report is a stand-alone document, meaning a reader should not be required to look at the Excel file to understand your analysis, findings and recommendations;

·         please note that adequate usage of the excel calculations in the report is important. This means that the key data/findings needs to be included in the report and appropriate referencing needs to be done, i.e. the relevant cell/table/range in the relevant tab of the excel file mentioned at the point of the report when it should be consulted.

Question 2:                                                                                                                 (25%)

Kyle Dier is looking to buy his first home and through savings and a gift from his parents he has managed to raise £120,000. Kyle has identified two possible properties, a one bedroom flat in the centre of town that costs £350,000 and a three-bedroom house outside of town that costs £500,000 and he's decided to ask for your help identifying the best mortgage offers he can choose.

Required:

a)      Identify (and clearly indicate them in your submission) a minimum of three lenders Kyle could borrow the money from and discuss the mortgage alternatives available and the respective terms and applicable interest rates;

b)      For the most favourable rate for each type of mortgage (interest only and repayment), calculate the monthly payment Kyle would need to make for each of the properties he's looking to possibly buy if he chooses to take out a 20-year mortgage;

c)      Kyle believes it is highly likely that he will receive £75,000 in two years' time and if he does, he will use the money to make a partial payment of the mortgage. For both options in b) and considering the payments he will have done by then as well as the one-off partial payment, calculate the monthly payments for the remaining 18 years of the mortgage.

d)     Make a recommendation on the property Kyle should buy purely on financial terms and identify what other factors should be taken in consideration when making the final decision.