ADMS3530-Final-F06-Sol

ADMS3530-Final-F06-Sol - Name _ Section _ ID # _ (Prof....

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Page 1 Name __________________________ Section _____ ID # ____________________ (Prof. King’s section A; Prof. Kohen’s sections D and G; Prof. Tahani’s sections C, E and F; Prof. Wong’s sections B and H) AK/ADMS 3530 Final Exam Fall 2006 December 19, 2006 7 -10 pm Exam - Solution This exam consists of 50 multiple choice questions. 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; and 8) You may use the back of the exam paper as your scrap paper.
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Page 2 Numerical Questions 1. (Q. 4 in B) What is the annual rate compounded monthly that is equivalent to 8% compounded quarterly? A) 0.66% B) 7.72% C) 7.95% D) 8.00% Solution (1 + 2%) 1/3 – 1 = 0.66% monthly rate, APR = 7.95% 2. (Q. 6 in B) How long (approximately) would take to pay back a $200,000 loan with a monthly payment equal to $1,510 if the quoted interest rate is 6% compounded monthly? A) 3 years B) 8 years C) 11 years D) 18 years Solution PMT = 1510, PV = -200,000, I = 0.5%, so n = 218 months 18 years 3. (Q. 5 in B) What is the price of a 20-year bond with a 5% coupon rate, a face value of $1,000 and pays semi-annual coupons, if the effective annual YTM is 5%. A) $1,000 B) $1,008 C) $1,050 D) $2,000 Solution i = (1+5%) 1/2 – 1 = 2.4695% PV = $25 x PVIFA(2.4695%,40) + $1,000 x (1+2.4695%) -40 = $1,008 4. (Q. 3 in B) A perpetual bond with a 6% coupon rate and a $1,000 face value sells for $1,200. What is the YTM? A) 5% B) 6% C) 8% D) 10% Solution YTM = $60/$1,200 = 5%
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Page 3 5. (Q. 1 in B) A stock is expected to pay a $2 dividend next year and a $5 dividend in year 3. You buy the stock today at $75 and expect to sell it at the end of year 3 realizing an expected annual return of 0%. What is the expected stock price at the end of year 3? A) $68 B) $75 C) $82 D) $100 Solution P 0 = $75 = $2 x (1+0%) -1 + $5 x (1+0%) -3 + P 3 x (1+0%) -3 gives P 3 = $68 6. (Q. 2 in B) What is your expected rate of return on a stock that you buy at $113 today, if you receive the following dividends: Div 1 = $3, Div 2 = $4, Div 3 = $5; and you sell it at the end of year 3 at P 3 = $120? A) 1.41%
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This note was uploaded on 04/11/2011 for the course ADMS 3530 taught by Professor Unknown during the Spring '09 term at York University.

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ADMS3530-Final-F06-Sol - Name _ Section _ ID # _ (Prof....

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