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ADMS3530-Midterm-W06-Sol

ADMS3530-Midterm-W06-Sol - Name Section ID(Prof Kohens...

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Page 1 Name ___________________________ Section _____ ID # ______________________ (Prof. Kohen’s sections S and T; Prof. Tahani’s section R; Prof. Tissenbaum’s section Q; Prof. Wong’s sections N and P; and Prof. Yildirim’s sections M and O) AK/ADMS 3530 Midterm Exam Winter 2006 February 19, 2006 Solution This exam consists of 30 multiple choice questions and carries 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 . Please note the following points : - The 20 “Numerical Questions” are worth 4 points each . - The 10 “Conceptual Questions” are worth 2 points each . - Choose the answers that are closest to yours, because of possible rounding. - Keep at least 2 decimal places in your calculations and final answers, and at least 4 decimal places for interest rates. - Interest rates are annual unless otherwise stated. - Bonds pay semi-annual coupons unless otherwise stated and have a par value (or face value) of $1,000. - You may use the back of the exam paper as your scrap paper. Numerical Questions (4 points each) 1. (Q.6 in B) In order to show the appreciation of the quality education that enabled you to land in your dream job in an investment banking several years ago, you are now planning to establish a 20-year scholarship fund at York University that will pay $10,000 at the end of the first year and then increase by 3% per year. The scholarship fund will be managed by a successful fund manager, Chris Robinson, who also happens to be a York graduate. Chris guarantees that the fund will earn a 10% annual rate of return. How much should you donate to York today in order to maintain this scholarship? A) $138,352.42 B) $104,504.72 C) $146,508.84 D) $117,852.54 Solution
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Page 2 PV of a growing annuity = + + × t r g g r C 1 1 1 = + + × 20 10 . 0 1 03 . 0 1 1 03 . 0 10 . 0 10000 = = $104,504.72 2. (Q.10 in B) You are planning to buy a new condominium in Toronto. The Condo is worth $220,000; you will put a 25% down payment and obtain a 25-year fixed rate mortgage at 6.25% (APR semi-annually compounded) for the rest. Assuming that monthly payments begin in one month, how much interest will you pay (in dollars) over the life of the loan? 1. Find the monthly rate: i = (1+ 0.0625/2) 2/12 -1 = 0.005142, 2. Find the monthly payment with a PV of $165,000 ( $220,000 x 75% ) PV= -165,000 , N=300, i=0.5142%, FV=0, PMT=? Answer= $1,080.35
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