Demo Qs Topic 2 Part 1

# Demo Qs Topic 2 Part 1 - DEMONSTRATION LECTURE QUESTIONS...

This preview shows pages 1–6. Sign up to view the full content.

DEMONSTRATION LECTURE QUESTIONS AND SOLUTIONS TOPIC 2 FINANCIAL MATHS Question 1 \$100 to be received at the end of 3 years is worth how much today, assuming a discount rate of (i) 10 per cent (ii) 100 per cent (iii)0 per cent? ( 29 n n r 1 FV PV - + = ( 29 PV = + = - 100 1 010 13 3 . \$75. ( 29 PV = + = - 100 1 1 50 3 \$12. ( 29 PV = + = - 100 1 0 00 3 \$100. (i) (ii) (iii) Solution 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Question 2 At the end of 5 years, how much is an initial \$500 deposit plus annual \$100 payments worth, assuming an annual interest rate of (i) 10 per cent (ii) 5 per cent (iii) 0 per cent? ( 29 ( 29 - + + + = r r PMT r PV FV n n 1 1 1 0 ( 29 ( 29 FV = + + + - = + = 500 1 010 100 1 010 1 010 80526 61051 41577 5 5 . . . . . \$1, . ( 29 ( 29 FV = + + + - = + = 500 1 005 100 1 005 1 005 63814 552 56 190 70 5 5 . . . . . \$1, . FV = \$1, . 00000
Question 3 What is the present value of \$500 to be received at the end of each of the next 3 years, assuming a discount rate of (i) 4 per cent (ii) 25 per cent? Solution ( 29 + - = - r r 1 1 PMT PV n ( 29 PV = - + = - 500 1 1 004 004 387 55 3 . . \$1, . ( 29 PV = - + = - 500 1 1 0 25 0 25 00 3 . . \$976. (i) (ii)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Question 4 If Miss Smith is offered the choice of: (a) \$628.06 now; or (b) \$50 per quarter for four years at 12% per annum compounded quarterly; or (c) \$1007.85 at the end of four years; which alternative should you recommend that she accept? Solution . Need common base to compare the alternatives. Simplest approach is to convert each alternative to a present value (although it wouldn't matter if the base chosen for comparison was the annuity or the future value). 06 . 628 \$ PV = ( 29 ( 29 06 . 628 \$ 03 . 0 03 . 0 1 1 50 r r 1 1 PMT PV 16 n = + - = + - = - - ( 29 ( 29 06 . 628 \$ 03 . 0 1 85 . 1007 r 1 FV PV 16 n n = + = + = - -
Question 5 Your friend is celebrating his 35th birthday today and wants to start saving for his anticipated

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 16

Demo Qs Topic 2 Part 1 - DEMONSTRATION LECTURE QUESTIONS...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online