Practice Midterm Exam

Practice Midterm Exam - Practice Midterm Exam — Distance...

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Unformatted text preview: Practice Midterm Exam — Distance Studies Summer Chapter 1 1. A loan of $P is taken out. It is to be repaid with a payment of $2000 in 2 months, $50 in 6 months and a final payment due in 10 months. lfthe merchant’s rule is used, the final payment turns out to be $3000. If the rate of simple interest on the loan is r = 12%, what is P? (A) $4733.51 (B) $4735.23 (C) $4736.36 (D) $4738.18 You invest $2300 on June 10. On November 10, you have earned $72.42 of interest. What rate of simple interest did you earn? (A) 7.41% (B) 7.51% (C) 7.56% (D) 7.66% Use the following information for the next two questions: You borrow $P on May 15, 2003. You write a promissory note to repay the loan in 9 months at a simple interest rate of r = 7%. 3. If the maturity value is $15,012.47, what is the face value of the note? (answer to nearest dollar) (A) $14,264 (B) $14,258 (C) $14,250 (D) $14,209 4. The note was sold 132 days prior to the maturity date to a bank. The bank pays $14,655.23 for the note. What rate of simple discount, d, did they use to determine this price? (A) 5.91% (B) 6.43% (C) 6.58% (D) 6.74% 5. A debt of $3000 is due in 4 months and another $5000 is due in 9 months. Instead, it is agreed that a payment of $X, made in 3 months, followed by a payment of $4000 in 10 months, will fully pay off the loan. Using 9 months as the focal date, what is X if the simple interest rate on the loan is r = 10%? (A) $3841.01 (B) $3960.06 (C) $3896.83 (D) $4365.96 6. You invest $20,000 in a fund that earns simple interest at r = 7% for 2 years, followed by simple interest at r = 5% for 3 years. How much will you have at the end of 5 years? (A) $25,800.00 (B) $26,220.00 (C) $26,507.30 (D) $26,050.50 7. You take out a loan of $A at a simple interest rate of r for n-days (n > 0). Under exact interest, you have to pay back $8230 at the end of n-days. If ordinary interest is used instead, what would be the amount to be paid back at the end of n-days? (A) $8230 (B) More than $8230 (C) Less than $8230 (D) Not sure if it will be more or less than $8230 Chapter 2 8. What simple interest rate, r, is equivalent to jlz = 9% over a 2-year period? (A) 8.30% (B) 9.41% (C) 9.38% (D) 9.82% 9. A woman borrowed money and now owes $3000 one-year from now and another $3000 three-years from now. The loan is renegotiated so that the woman can instead pay $X two-years from now and $4000 four-years from now which will fully pay back the loan. If the interest rate on the loan is .12 = 8%, what is the value ofX? (D) $2306.39 (A) $2599.25 (B) $2588.42 (C) $2580.78 10. What is the present value of $100,000 due exactly 4 years and 8 months from today isz = 9% and the practical method of discounting is used? (A) $66,324.55 (B) $66,310.35 (C) $66,296.00 (D) $65,358.66 11. A fund pays interest atj. = 5% for the first 3 years, followed by j4 = 10% for the next year, followed by jlz = 12% for the next year. What is the equivalent nominal interest rate, jg, earned over the 5 years? (A) 7.23% (B) 7.40% (C) 7.43% (D) 7.56% 12. A person invests $2000 today in a fund earning interest atjl = 6%. If the rate of inflation is 2.1% in the first year and 3.0% in the second year, how much is the investment worth, in real terms (after taking account of inflation), at the end of two years? (A) $2131.30 (B) $2136.87 (C) $2138.15 (D) $2140.34 13. You invest $1500 today and another $2000 18-m0nths from today in a fund earningj4 = 8% for the first 18 months followed by jz = 6% thereafter. How much do you have at the end of 4 years? (A) $4007.79 (B) $4274.59 (C) $4276.84 (D) $4377.73 14. You invest $20,000 today in a fund earning interest atj. = 4%. How much will you have in 5 years, 270 days if the exact method of accumulating is used? (A) $25,063.05 (B) $25,053.05 (C) $25,059.46 (D) $25,049.36 15. How long does it take for a loan of $5000 to accumulate $1000 of interest isz = 10%? (A) 1 year, 10 months, 13 days (B) 1 year, 10 months, 29 days (C) 3 years, 8 months, 26 days (D) 3 years, 9 months, 28 days Chapter 3 16. Jim has just turned age 65. He takes his RRSP savings of $300,000 and buys a 20-year annuity that pays him $R every month. If the interest rate is j]; = 7.2% and the first payment is at age 65, what is R? (A) $2376.22 (B) $2366.48 (C) $2362.05 (D) $2347.96 17. Billy withdraws $500 at the end of every 3-months for 10-years from a fund earning interest at j4 = 8% for 6-years followed by j4 = 6% for the last 4-years. How much does Billy have to deposit today? You are given: aim-02 = 18.9139; amo015 = 14.1313 (A) $16,522.59 (B) $14,399.68 (C) $13,937.67 (D) $13,849.82 18. A loan, A, is repaid with semi-annual payments of $1000. The first payment is due May 26, 2003 and the last payment is due May 26, 2008. If the interest rate on the loan is jg = 7% and the loan was taken out on November 26, 2002, what is A? (A) $8316.61 (B) $8607.69 (C) $9001.55 (D) $9316.61 19. A person deposits $100 a month in an account earning interest at j 12 = 12%, first deposit made today. A total of 30 deposits are made. What is the accumulated value of the account at the end of 4 years? 100 s3m 0 m 100 Silom 18 -- 19 (1.01) (B) 100 SEW“ (1.01) (A) (C) (1.01)17 (1.01)18 (D) 100 s4 301001 Eu 20. You buy a used car today for $200 down and no payments for 9 months. At the end of 9 months, you begin making monthly payments of $500 for a total of 30 months. If the financing rate isjlg = 9%, what is the cash price of the car? You are given: amIO mm = 26.7751 (A) $13,587.55 (B) $12,810.74 (C) $12,716.87 (D) $12,610.74 21. Sally wants to accumulate $11,500. She makes deposits of $500 at the end of every 6 months in a fund earning interest atjz = 5%. It turns out that after making 18 deposits, she is still short of her goal by $306.83. What is the size of the smaller concluding deposit (drop payment) needed 6 months later in order for her to reach (or exceed) her goal of $11,500? (A) $27.00 (B) $185.50 (C) $314.50 (D) No deposit is needed6months later Chapter 4 22. You invest $A today. From this fund, you withdraw $500 today, followed by withdrawals that increase by 3% every 3 months. You plan to make a total of 20 quarterly withdrawals. If your investment earns interest atj4 = 8%, what is A? (A) $10,773.05 (B) $10,988.52 (C) $11,096.25 (D) $11,208.29 23. You deposit $10,000 today and withdraw $R at the end of every 6 month period for 5 years. If the interest rate ist = 12%, what is R? (A) $1347.76 (B) $1358.68 (C) $1387.05 (D) $1399.44 24. An endowment fund of $20,000 is to pay out $R every year forever, with the first payment made exactly 2 years from now. Ifj. = 7%, what is R? (A) $1308.41 (B) $1400.00 (C) $1498.00 (D) $1602.86 25. A scholarship fund is set up to pay out $10,000 in one year’s time, with each succeeding annual scholarship being $100 higher. Annual scholarships are to continue forever. If j. = 10%, how much money is need to be invested today to fund this scholarship plan? (A) $100,000 (B) $101,000 (C) $109,091 (D) $110,000 26. A couple takes out a mortgage for $180,000 at jg = 8%. They plan to make payments twice a month over 25-years. What is the size of the payment? (A) $632.94 (B) $634.05 (C) $685.77 (D) $686.89 Chapter 5 27. A loan of $25,000 is to be repaid with quarterly payments of $1500 for 3 years (12 payments) followed by quarterly payments of $1000 for as long as is needed. If the interest rate on the loan is j,; = 10%, what is the outstanding balance after 13 payments? You are given: salon” = 13.79555 (A) $11,928.89 (B) $12,252.12 (C) $12,769.45 (D) $15,462.78 28. A house is purchased by a couple who make a down payment of $20,000 and finance the remaining $100,000 through a mortgage atjn = 6% with monthly payments of $716.43 for 20 years. What is the buyer’s equity after 10 years? You are given: dam-005 = 90.0735; 51%|0005 = 163.8796 (A) $35,469 (B) $44,531 (C) $55,469 (D) $64,531 'a) 29. 30. 31. 32. 33. 34. A loan for $10,000 is to be amortized over 5 years with monthly payments of $207.58. The outstanding balance after 34 payments have been made is $4887.11. How much interest has the borrower paid on the loan up to this point in time? (A) $1944.83 (B) $2170.61 (C) $2454.80 (D) $2942.28 A company has borrowed $A and has agreed to pay interest on the loan every 3-months at j4 = 8% and pay back the $A in one lump sum at the end of 11 years. The company will make quarterly deposits in a sinking fund earningj4 = 4% to accumulate to $A by the end of 11 years. If the book value of the loan after 5 years is $81,485, what is the value of A? (Answer to the nearest $100) (A) $119,300 (B) $125,300 (C) $136,000 (D) $203,300 A loan of $A has quarterly payments of $359.46. If lg = $172.46 and 19 = $168.72, what is the principal repaid in the 16lh quarterly payment? (A) $222.38 (B) $219.10 (C) $196.71 (D) $193.81 A loan is to be paid back using the sum-of-digits method with 120 monthly payments of $720 (10 years). If the interest rebate (the interest to be paid over the remaining term of the loan) after 6 years is $5866.34, what is the total interest paid over the life of the loan? (A) $9777.23 (B) $16,206.10 (C) $28,693.66 (D) $36,215.67 A large loan is to be repaid over 25 years with monthly payments. After 3 years, the outstanding balance of the loan is $96,329.18 and the loan is refinanced atjlz = 6%. If the new monthly payment is 700, what refinancing penalty was assessed? You are given: a— = 146.3969 264 IO 005 (A) $3670.82 (B) $6148.65 (C) $8644.80 (D) $12,315.63 A loan of $200,000 can be amortized over 10 years at jl = 13% (option 1). Alternatively, the money can be borrowed atj. = y%, with interest paid at the end of each year and the original loan repaid with one lump sum at the end of 10 years (option 2). For option 2, a sinking fund can be set up earning jl = 9%. What is the value of y such that the annual expense under the two options is the same? (A) (C) less than 10.5% 11% or more, but less than 11.5% (B) 10.5% or more, but less than 11% (D) 11.5% or more 35. A loan of $A, atjz = 8%, is to be repaid over n-years with semi-annual payments of $885.40. If the principal repaid in the 2nd payment is $491.63, what is A? (answer to nearest dollar) (A) $9844 (B) $10,317 (C) $11,818 (D) $12,291 Chapter 6 36. You have two bonds, both with face value of $2500. Bond A is redeemable at 102 and Bond B is redeemable at 98. Bond A cost $2513.47 and Bond B cost $2482.55. Which of the following statements is true? Bought at a Premium Bought at a Discount (A) Bond A and B .... -- (B) Bond A Bond B (C) Bond B Bond A (D) ----- Bond A and B 37. A $1000 bond is redeemable at par in 10 years and is callable at par after 7 years. The price of the bond to yield j; = 10% is 0 $982.37 assuming the bond is held to maturity 0 $975.48 assuming the bond is called after 7 years Which of the following statements is true? (A) If an investor pays $975.48 and the bond is held to maturity, the yield will equal j3 : 10% (B) If an investor pays $975.48 and the bond is called after 7 years, the yield will exceed jg = l0% (C) If an investor pays $982.37 and the bond is called after 7 years, the yield will exceed j: = 10% (D) If an investor pays $982.37 and the bond is held to maturity, the yield will equal jg = 10% 38. A bond with face value F and redemption value C where C < F, has a bond rate, r, that is exactly equal to the yield rate, i. What can be said about the price, P? (A) It equals F (B) It is greater than F (C) It is less than F (D) Not sure if it would be greater than, or less than, or equal to F 39. A bond, paying semi—annual coupons of $60, is purchased at a discount to yield jg = 13%. The book value adjustment in the 6‘" coupon period is —$10.80. What is the interest on the book value for the 11lh coupon, I“? (A) $45.20 (B) $52.12 (C) $67.88 (D) $74.80 40. A $1000 bond pays semi-annual coupons of $50 every April 1‘l and October 1‘“. The bond is purchased on February 26, 2003. The price on October 1, 2002 to yield jz = 9% is $1056.17. What is the quoted price on February 26, 2003? (A) $1044.82 (B) $1054.00 (C) $1094.82 (D) $1135.48 41. A 6-year accumulation bond with face value $10,000 and redemption value $10,150, pays interest at jz = 4%. What is the price to yield j2 = 5%? (A) $7547.09 (B) $9430.09 (C) $9541.62 (D) $9598.65 42. A $1000 bond with semi-annual coupons is redeemable for $1030 in 5 years. The write-down (book value adjustment) in the 1Sl coupon period is $4.09. What is the price of the bond to yield jg = 9%? (A) $949.74 (B) $979.74 (C) $1050.26 (D) $1080.26 43. For a $10,000 bond with semi-annual coupons, you are given the following: 0 The redemption value is $10,400 0 The book value one period before the redemption date is $10,347.57 0 Interest on the book value in the last coupon period is $369.93 What is the bond coupon rate, jz? (A) 6.35% (B) 7.15% (C) 7.40% (D) 8.45% 44. A 6-year accumulation bond with face value $10,000 and redemption value $10,150, pays interest at j; = 4%. What is the price to yield jg = 5%? (A) $7547.09 (B) $9430.09 (C) $9541.62 (D) $9598.65 45. A $1200 bond with semi-annual coupons at jz = 6% is redeemable at 97 on August 2, 2011. It is quoted at q = 85 on February 2, 2004, with the first coupon due August 2, 2004. Using the method of averages, what is the yield rate, jz? (A) 8.35% (B) 8.48% (C) 9.67% (D) 9.80% Answer Key 8 9 10 11 12 D A A _ C B 20 21 22 23 24 B A B A C 32 33 34 35 36 D B D B c 44 45 c A ...
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Practice Midterm Exam - Practice Midterm Exam — Distance...

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