ADMS3530-Final-W10-Sol - Name Section ID Professor...

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Page 1 Name Section ID # Professor Alagurajah’s Section M (Thursdays, 4-7 pm), Professor Ho’s Sections R (Fridays, 2:30-5:30 pm) and S (Mondays, 2:30-5:30 pm), Professor King’s Sections P (Mondays, 7- 10 pm) and O (Internet), Professor Kohen’s Section T (Wednesdays, 7-10 pm), Professor Pestano’s Section Q (Wednesdays, 4-7 pm), and Professor Tahani’s Section N (Tuesdays, 7-10 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 semi-annual 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) Non-programmable financial and/or scientific calculators are allowed.
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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 semi-annual 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
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