# ADMS3530-Midterm-F09-Sol - Name Section ID Professor...

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2 Numerical questions (4 points each) 1. Your cousin just came home from a poker tournament in Las Vegas and is now trying to pay off a gambling debt of \$5,000. You have agreed to pay off the debt for him today, and in return he has agreed to pay you \$250 per month over the next two years with payments beginning immediately. What is the effective annual interest rate you are charging him? A) 19.75% B) 19.86% C) 21.77% D) 22.26% E) 23.45% Answer C 5,000 = 250 x PVIFA (i,24) x (1+i) because it is an annuity due Solve for i using your financial calculator: i = 1.6550% EAR = (1 + i m ) m -1 = (1.01655) 12 -1 = 21.77% 2. Your parents are willing to pay for your MBA degree and want to put aside funds today even though you will not be entering MBA school for another 3 years (from today). If they can earn 4.5% annually on the funds and your MBA school will cost \$35,000 at the beginning of each year of the two year program, how much money do they need to set aside today? A) \$57,435
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ADMS3530-Midterm-F09-Sol - Name Section ID Professor...

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