# ADMS3530-Final-F08-Sol - Name Section ID(Prof Alagurajahs...

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Page 2 Numerical Questions 1. (Q. 4 in B) You are planning to establish a 30-year scholarship fund for the top 3530 student at York University. The fund will pay \$11,000 at the end of the first year and then increase by 1.50% per year. The manager expects that the fund will earn a 5.75% annual rate of return. How much should you donate to York today in order to maintain this scholarship? A) \$50,346 B) \$146,509 C) \$183,214 D) \$258,824 Solution This is a growing annuity: PV = \$11,000/(0.0575 - 0.015) x [1 - (1.015/1.0575) 30 ] = \$183,214 2. (Q. 5 in B) You want to buy a house in Collingwood that costs \$300,000. You make a 20% down payment and finance the rest with a 15 year mortgage. The mortgage has a five year renewal term for which the annual mortgage rate is 6.5% compounded semi-annually. What will the remaining principal of the loan be at the end of the 5-year term? A) \$162,117 B) \$183,831 C) \$204,514 D) \$229,789 Solution i s = 6.5%/2 = 3.25% EAR = (1+.0325) 2 -1 = 6.605625% Monthly rate is r = (1+0.06605625) 1/12 - 1 = 0.005345 = 0.5345%. Number of months = 15 years x 12 = 180 = n Monthly Payment using your calculator: N=180, I/Y=0.5345%, PV=-\$240,000, FV=0, COMP PMT PMT=\$2,079.33 Remaining principal at the end of 5-year term is the PV of remaining payments: N=120, I/Y=0.5345%, PMT=\$2,079.33, FV=0, COMP PV=\$ 183,831 3. (Q. 6 in B) Research In Motion recently issued a five-year, zero-coupon bond
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ADMS3530-Final-F08-Sol - Name Section ID(Prof Alagurajahs...

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