Page 1
Name
Section
ID #
Professor Alagurajah’s Section M (Thursdays, 47 pm), Professor Ho’s Sections R
(Fridays, 2:305:30 pm) and S (Mondays, 2:305:30 pm), Professor King’s Sections P
(Mondays, 7 10 pm) and O (Internet), Professor Kohen’s Section T (Wednesdays, 710
pm), Professor Pestano’s Section Q (Wednesdays, 47 pm), and Professor Tahani’s
Section N (Tuesdays, 710 pm).
AP/ADMS 3530.03 Finance
Final Exam
Winter 2010
April 11, 2010
Exam  Solution
This exam consists of 50 multiple choice questions. 2 points each for a total of 100
points. 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
.
BE
SURE
TO
BLACKEN
THE
BUBBLES
CORRESPONDING TO YOUR STUDENT NUMBER.
Please note the following eight points
:
1) Please use your time efficiently and start with the questions that you are most
comfortable with first.
Remember
: every question carries the same weight, so
please do NOT spend too much time on one particular question;
2) Read the exam questions carefully;
3) Choose the answers that are
closest
to yours, because of possible rounding;
4) Keep at least 2 decimal places in your calculations and final answers, and at least
4 decimal places for interest rates;
5) Interest rates are annual unless otherwise stated;
6) Bonds pay semiannual coupons unless otherwise stated;
7) Bonds have a par value (or face value) of $1,000;
8)
Assume cash flows or payments occur at the end of a period or year, unless
otherwise stated; and
9) You may use the back of the exam paper as your scrap paper.
10) Nonprogrammable financial and/or scientific calculators are allowed.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Page 2
Numerical Questions
1. How much would you have in eight years if you deposit $5,000 at the beginning of
each year for eight years and the interest rate is 4% compounded annually?
A) $36,842.84
B) $42,491.47
C) $46,071.13
D) $47,913.98
E) $51,375.02
Solution D
Note that we are dealing with an annuity due.
Option 1: Use calculator and set
BGN
mode
PMT=5000, n= 8, i = 4, PV = 0,
Comp FV
Æ
47,913.98
Option 2: Find FV of ordinary annuity and adjust by 1 period:
PMT=5000, n= 8, i = 4, PV=0,
Comp FV
Æ
46,071.13 x 1.04 =
47,913.98
2. You are planning on taking out a $200,000 mortgage to purchase a condo in
Newmarket and the posted mortgage rate is 3.50% (APR compounded
semiannually). Assuming that monthly payments begin in one month, how much
interest will you save by choosing a 20 year amortization period versus a 30 year
amortization period (assume that rates do not change over the life of the loan).
Solution C
Find the semiannual rate: i
s
= 3.50/2 = .0175
Find EAR:
EAR = (1.0175)
2
– 1 = .035306
Find the monthly rate: i
m
= (1+ 0.035306)
1/12
1 = 0.002896
Option 1: 20 year mortgage
n = 20yrs x 12mths/yr = 240 months
Find the monthly payment using your calculator:
PV=

200,000, n=240, i=0.2896%, FV=0, Comp PMT
Æ
PMT = 1157.37
Amount of interest paid over the 20 year mortgage:
(240 payments x 1157.37) – $200,000 = $77,768.80