C70mt_summer2009_Questions+%26+Solutions - UNIVERSITY OF...

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UNIVERSITY OF TORONTO at Scarborough MANAGEMENT MGTC70H (Personal Financial Management) L30 Midterm Exam Date: June 18, 2009 Location: SW309 Time: 5:05 – 6:55 p.m. Prof. Syed W. Ahmed TA: Cammy Wang Number of Pages including title page: 8 Items Allowed: Calculator and one 8.5”*11” double sided crib sheet. Only handwritten (no photocopies) crib sheet is allowed. Please do all the problems with pen or at least write the final answer with pen. You can write on both sides of a page to answer the questions. STUDENT’S NAME:________________________________________________ Last First Middle STUDENT’S I.D. NO.:_______________________________________________ QUESTION NO. MAX. MARKS MARKS OBTAINED 1 20 __________________ 2 25 __________________ 3 25 __________________ 4 30 __________________ TOTAL MARKS 100 __________________ GOOD LUCK
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-2- QUESTION 1: Jennifer Lopez would like to join University of Toronto in 2 years to obtain a Ph.D. in Finance. It will take her 4 years to complete the Ph.D. (6 years from now she will be a Ph.D.) She expects to earn $5000 one year from now, and her earnings expect to rise at the rate of 10% per year before and during the Ph.D. program. She will use her earnings to help finance her Ph.D. Presently it costs about $25,000 a year in tuition and books, but it is expected to increase at 5% per year. Inflation rate is expected to be 2% per year for the next 10 years. Her parents would like to help finance her studies. How much should they invest today to make up for shortfall in each of her 4 years of university? Assume her parents can earn an after tax nominal rate of return of 3.6% per year, while she can earn 6% per year (she does not pay any taxes). Tuition and other university costs will be paid at the beginning of each year of University. -3- QUESTION 2: James Travis, who is 25years old, has set a retirement goal of having $1,500,000 by the time he retires at age 60. He plans to achieve this by investing his annual savings of $10,000 in blue chip corporate bonds expected to earn 6% per year for the next 35 years. a.
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C70mt_summer2009_Questions+%26+Solutions - UNIVERSITY OF...

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