Ak/Adms 3530.03 Finance Final Exam Winter 2007 Solutions
AK/ADMS 3530.03 Finance Final Exam
Winter 2007
Solutions
Type A Exam
Numerical questions (2 points each)
1. (Q. 5 in B) What is the present value of the following payment stream, discounted at 8 percent annually: $1,000 at the end of year 1, $2,000 at the end of year 2, and $3,000 at the end of year 3?
A) $5,022.11 B) $5,144.03 C) $5,423.87 D) $5,520.00
Answer A
PV = [pic] = $925.93 + $1,714.68 + $2,381.50 = $5,022.11
2. (Q. 6 in B) What is the present value of a four-year annuity of $100 per year that begins two years from today if the discount rate is 9 percent?
A) $297.22 B) $323.86 C) $356.85 D) $388.97
Answer A
PV1 = $100 [pic] = $100 [3.2397] PV1 = $323.97
PV0 = [pic] = $297.22
3. (Q. 7 in B) $3,000 is deposited into an account paying 10 percent annually, to provide three annual withdrawals of $1,206.34 beginning in one year. How much remains in the account after the second withdrawal?
A) $587.32 B) $1,096.67 C) $1,206.34 D) $1,326.97
Answer B
[pic]
4. (Q. 8 in B) Approximately how much should be accumulated by the beginning of retirement to provide a $2,500 monthly check (to be paid at the end of each month) that will last for 25 years, during which time the fund will earn 8 percent interest with monthly compounding?
A) $261,500 B) $323,800 C) $578,700 D) $690,000
Answer B
The monthly interest rate is 8% / 12 = 0.667% PV = $2,500 × [1/0.00667 – 1/(0.00667(1.00667300))] = $2,500 [129.52] = $323,800.
5. (Q. 1 in B) An investor buys a ten-year, 7 percent coupon bond for $1,050, holds it for one year and then sells it for
Winter 2007
Solutions
Type A Exam
Numerical questions (2 points each)
1. (Q. 5 in B) What is the present value of the following payment stream, discounted at 8 percent annually: $1,000 at the end of year 1, $2,000 at the end of year 2, and $3,000 at the end of year 3?
A) $5,022.11 B) $5,144.03 C) $5,423.87 D) $5,520.00
Answer A
PV = [pic] = $925.93 + $1,714.68 + $2,381.50 = $5,022.11
2. (Q. 6 in B) What is the present value of a four-year annuity of $100 per year that begins two years from today if the discount rate is 9 percent?
A) $297.22 B) $323.86 C) $356.85 D) $388.97
Answer A
PV1 = $100 [pic] = $100 [3.2397] PV1 = $323.97
PV0 = [pic] = $297.22
3. (Q. 7 in B) $3,000 is deposited into an account paying 10 percent annually, to provide three annual withdrawals of $1,206.34 beginning in one year. How much remains in the account after the second withdrawal?
A) $587.32 B) $1,096.67 C) $1,206.34 D) $1,326.97
Answer B
[pic]
4. (Q. 8 in B) Approximately how much should be accumulated by the beginning of retirement to provide a $2,500 monthly check (to be paid at the end of each month) that will last for 25 years, during which time the fund will earn 8 percent interest with monthly compounding?
A) $261,500 B) $323,800 C) $578,700 D) $690,000
Answer B
The monthly interest rate is 8% / 12 = 0.667% PV = $2,500 × [1/0.00667 – 1/(0.00667(1.00667300))] = $2,500 [129.52] = $323,800.
5. (Q. 1 in B) An investor buys a ten-year, 7 percent coupon bond for $1,050, holds it for one year and then sells it for