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Midterm Questions

Midterm Questions - The UBC Finance Club is planning a new...

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1) Finn Ants was awarded a Sauder Entrance Scholarship in his first year at UBC. He had the option of receiving four equal \$2,500 payments at the beginning of each year, OR one lump-sum payment halfway through his degree. If the discount rate is 4% per year, what is the value of Finn’s lump-sum payment? Answer: \$9,815.24 2) Finn will withdraw \$2,500 at the end of each year for the next three years from an account that pays interest at a rate of 5% per year, compounded semi-annually. The account balance will reduce to zero when the last withdrawal is made. How much interest will you earn in the third year? Answer: \$119.05 3) UBC Food Services Labor Union negotiated a new agreement for wages increases of 1% in the first year, 2% in years 2 and 3, and 4% in year 4. Suppose inflation was 2% for the first 2 years and 3 % for the last 2 years. How much has purchasing power increased/ decreased over this period? Answer: <0.99%>

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Unformatted text preview: The UBC Finance Club is planning a new advertising promotion for current Gr.12 students called, “Set For UBC”. The winner will receive a set amount at the beginning of the first month at UBC, then double that amount at the beginning of the second month, then back to the original value in the third month, and double again in the fourth month. This pattern will continue for the winning student’s four year degree, including summer months, and finish with a final payment upon graduation in May. a) Draw an accurate timeline which shows all the details of this problem. b) If the Finance Club uses a 2% discount rate and is only willing to pay \$10,000 total, what is the value of the November 2010 payment? Answer: \$446.79 c) If the lucky winner puts all their winnings into a Tax Free Savings Account earning 3% interest per month, how much money will they have when graduate? Answer: \$30806.53...
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Midterm Questions - The UBC Finance Club is planning a new...

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