# ADMS3530-Midterm-F07 - Name Section ID(Prof Alagurajahs sections F and G Prof Kings section D Prof Lis section A Prof Tahanis sections C and E Prof

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Page 2 This is more than the \$7,000 you would get today from the dealer. Therefore you would sell your car to you friend. 2. (Q. 7 in B) Your brother bet the Toronto Maple Leafs would win their 2007 home opener and is now trying to pay off a gambling debt of \$3,000. You have agreed to pay off the debt for him today, and in return he has agreed to pay you \$125 per month over the next three years with payments beginning immediately. What is the effective annual interest rate you are charging him? A) 25.14% B) 32.61% C) 35.15% D) 42.24% Solution C 3,000 = 125 x PVIFA(i,36) x (1+i) because it is an annuity due Solve for i using your financial calculator: i = 2.5416% EAR = (1 + i m ) m -1 = (1.025416) 12 -1 = 35.15% 3. (Q. 8 in B) The following cash flows have a present value of \$1,922.51: \$300 today, \$400 at the end of year one, X at the end of year two, and \$900 at the end of year three. The annual interest rate is 6%. What is X? A)
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## This note was uploaded on 01/26/2010 for the course ADMS 3530 taught by Professor Unknown during the Spring '09 term at York University.

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ADMS3530-Midterm-F07 - Name Section ID(Prof Alagurajahs sections F and G Prof Kings section D Prof Lis section A Prof Tahanis sections C and E Prof

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