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CrsFM_Nov05_solutions_v4

# CrsFM_Nov05_solutions_v4 - 1 D 2 000 000 =.08(25 000 000.5...

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Course FM November 2005 solution set page 1 of 6 1. D 2,000,000 .08 (25,000,000 .5 ( 2,200,000 750,000)) 1,882,000 .04 118,000 .04 2,950,000 End of year value is given by 25,000,000 2,000,000 2,950,000 2,200,000 750,000 27,000,000 27,000,000 25,000,000 X X X X = + = + = = + + = = 0.5 0.5 (1 ) (2,950,000 2,200,000 750,000) (1 ) 27,000,000 25,000,000 (1 ) 0 (1 ) 1 1.08 0.08 i i i i i i + + + = + + + + = = 2. C ( ) ( ) ( ) 8 8 8 8 10 800 5.989 10 100 Ia v a v + = + with 8% i = and coupon ( )( ) 10% 100 10 = = 3. C ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) 5 3 24 24 24 4 2 24 4 2 24 50 1 100 1 150 1 10,000 50 1 1 2 1 3 10,000 1 1 2 1 3 200 j j j j j s i s i s i s i i i s i i i + + + + + = + + + + + = + + + + + = ±± ±± ±± ±± ±± 4. D 20 20 0.03 0.08 1 118.2 100 2 1.03 n n P Fra Cv a C = + = + Using the calculator, enter N = 20, %I = 3, PV = –118.20, PMT = 4 and then CPT FV to get 106. The text makes it clear that the redemption value does not have to equal the par (or face) value, but that it often does. 5. Not scored because some of the material asked was not on the syllabus.

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Course FM November 2005 solution set page 2 of 6 6. A 5 5 4 4 5 4 0.09 (0.002)(5) (0.001)(25) 7.5% 0.09 (0.002)(4) (0.001)(16) 8.20% (1.075) 1 4.7% (1.082) i i i i j = + = = + = = = 7. D There are only two real possibilities: Two consecutive 3 year CDs: 12 12 0.05 0.05 10,000 1 1 4 4
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