1) Advances in technology have made easy the extensive use of credit scoring by financial institutions in building their lending decisions. Credit scoring can be defined largely as use of statistical techniques and historical data to rank attractiveness of potential borrowers and guide lending decisions. Describe in what ways could this practice improve efficiency of financial system?
2) Company is assessing the investment project which costs $ 15,000 and will make cash flow after taxes of $ 12,000 in first year, 3,000 in second year and $7,000 in third year. Discount rate for project is 15%. Compute net present value (NPV) and Profitability Index (PI) investment project must be run. Describe why in detail.
3) Once you retire you will be withdrawing $48,000 at commencement of every year for another 30 years. To build your retirement plans and for upcoming 30 years, you will begin depositing at the end of every year over 24 years certain amount of money in your bank account. As you are expecting that your salary will increase by 2% every year for coming 24 years then you wait for your yearly savings to increase by similar rate. If your bank is paying you 3.25% APR compounded weekly. What must be your first deposit so that you can attain your retirement plan?
i) $18,495.93
ii) $20,590.39
iii) $21,270.29
iv) $442,895.39
v) None of the given answers are right.