(Prof. Alagurajah’s sections F and G; Prof. King’s section D; Prof. Li’s section A; Prof. Tahani’s
sections C and E; Prof. Tissenbaum’s sections B and H)
AK/ADMS 3530 Midterm Exam
October 21, 2007
Exam - Solutions
This exam consists of
30 multiple choice questions
and carries a total
. Choose the
response which best answers each question.
Circle your answers below, and fill in your
answers on the bubble sheet. Only the bubble sheet is used to determine your exam score
Please note the following points
Read the questions carefully and use your time efficiently
The 20 “
worth 4 points each
The 10 “
worth 2 points each
Choose the answers that are
to yours, because of possible rounding.
least 2 decimal places for dollar amounts
in your calculations, and at
decimal places for interest rates
Interest rates are
unless otherwise stated.
unless otherwise stated and have a face value (or par
You may use the back of the exam paper as your scrap paper.
Numerical Questions (4 points each)
1. (Q. 6 in B) You decide to sell your car and a friend has offered you $1,000 now and
four annual payments of $2,000, with the annual payments starting at the end of the
Your other option is to sell the car to a dealer today for $7,000.
Assuming your friend will not default on the payments and the market interest rate is
8%, should you sell your car to your friend?
Yes; present value is $7,134
Yes; present value is $7,624
No; present value is $6,134
D) No; present value is $6,624
The PV of the annuity payment of $2,000 for 4 years is:
PV(at t=1) = 2,000 x PVIFA(8%,4) = 6,624.25
PV(at t=0) = 6,624.25/ (1.08) = 6,133.56
Finally add the initial payment $1000 today to the PV annuity at t=0
6,133.56 + 1,000 = 7,133.56 =