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UNIBE-FIU BUSINESS ADMINISTRATION International Business FINANCIAL MATHEMATICAS AI1-205, Section 1, Spring 2011 1 st Midterm Professor: Osvaldo Lagares, M.S. February 22, 2011 STUDENT ID: NAME: All questions must be answered in this test form! For each questions you must show your work and (or) provide a clear argument, otherwise a partial credit will be given. QUESTION 1 As a part of a negotiated relocation package, Santo Domingo Airlines, Inc. agreed to make an interest-free loan to one of its executives on April 15, 2006. The loan must be repaid by December 31, 2007. How long does she have to repay the loan? 5 points April 15 is day 90+15 = 105. December 31 is day 334 + 31 = 365. 4/15/06 2006 2007 12/31/07 |----------------------------|-----------------------------| 105 365 2006: Year ends on day 365. 365 – 105 = 260 days. 2007: Note runs through day 365. 365 days. Total term is 260 + 365 = 625 days. Page 1 of 12

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QUESTION 2 An engineer in Saudi Arabia took out a short-term loan for \$15,000 to pay for materials. The simple interest rate was 8% per annum, and the term was 21 days. Find the total interest paid. 5 points I = PRT I = \$15,000(0.08)(21/365) I = \$69.04 QUESTION 3 A loan of \$475.19 was made on April 17, 2007, at a simple interest rate of 0.0475% per day. When the loan was repaid, the total amount required to repay the loan was \$499.57. Find the date (month, day, year) on which this loan was repaid. 5 Points I = PRT \$24.38 = \$475.19(0.000475)(T) 24.38 = 0.22571525T T = 108 days Since the rate was per day, the result for T is in days. April 17 is day 90+17 = 107; 108 days after that is day 215. The largest number in the abbreviated table less than 215 is 212 for the end of July. The maturity date is 215-212 = 3 days after the end of July; so it is August 3, 2007. QUESTION 4 Because of a clerical error, the paperwork for a loan Miguel took out at New York Broke Bank failed to list the amount he borrowed. It did, however, specify that the term of the loan would be 100 days; simple interest would be paid at a rate of 12.63%, the interest would be calculated using banker’s rule, and the total interest would be \$49.12. How much did Simon borrow? 5 points I = PRT \$49.12 = P(0.1263)(100/360) \$49.12 = P(0.0350833333) Divide both sides of the equation by 0.0350833333 P = \$1,400.10 Page 2 of 12
QUESTION 5 How much would Michael need to deposit today into an account paying 6.52% annually compounded interest in order to have \$5,000 in 3 years. 5 points FV = PV(1+i)^n \$5,000 = PV(1+.0652)^3 5,000 = PV(1.208630288) Divide both sides by the compound interest factor 1.208630288 PV = \$4,136.91 QUESTION 6 The Vatican City is considering borrowing \$850,000 to fund a building expansion. At the annual financial meeting the chair of the finance committee states that with the financing the committee is considering the option in which the church would not be required to repay any principal for 5 years,

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