Quantitative methods 1 when alan hears that a

Quantitative Methods
1. When Alan hears that a baseball loving friend is coming to visit, he purchases
two premium seating tickets for $45 per ticket for an evening game. As the
date of the game approaches, Alan's friend telephones and says that his trip
has been cancelled. Fortunately for Alan, the tickets he holds are in high
demand as there is chance that the leading Major League Baseball hitter will
break the home run record during the game. Seeing an opportunity to earn a
high return, Alan puts the tickets up for sale on an internet site. The auction
closes at $150 per ticket. After paying a 10% commission to the site (on the
amount of the sale) and paying $8 total in shipping costs, Alan's holding
period return is approximately:
A. 191%.
B. 182%.
C. 202%.
The correct answer is A. The holding period return is calculated as: (ending price −
beginning price +/any cash flows) / beginning price. Commission of $30 (0.10 × 150
× 2 tickets) and the shipping cost of $8 (total for both tickets). Thus, her holding
period return is: (2 × 150 − 2 × 45 − 30 − 8) / (2 × 45) = 1.91, or approximately 191%.
2. Lilly and Lara borrowed $150,000 to finance their vacation. The monthly
payment loan has a term of seven years and a 14% interest rate. The amount
of interest in first EMI and the amount of principal in second EMI are
approximately: