Study Guides (390,000)
CA (150,000)
York (10,000)
ADMS (1,000)
Final

# ADMS 3530 Final: 3530 Final Tutorial Questions.SU19 (1)Exam

Department
Administrative Studies
Course Code
ADMS 3530
Professor
Alagurajah
Study Guide
Final

This preview shows pages 1-3. to view the full 15 pages of the document.
1
ADMS 3530 Final Exam Tutorial â€“ Notes & Practice Problems (Example)
TVM- Ch.5
PV & FV: SINGLE CASH FLOWS
Future Value: FV = PV Ã— (1 + r)n
Present Value: PV = Future Value
(1 + r)n
PV & FV: MULTIPLE CASH FLOWS
Example 1: Multiple Cash Flows
In two years from today, the following cash flows will have a future value
of \$3032.32: \$200 today, \$Y at the end of one year, and \$2,400 at the end of two
years. The annual interest rate is 4%. What is Y?
A) \$330.00
B) \$400.00
C) \$416.00
D) \$432.64
E) \$167.55
PERPETUITIES & ANNUITIES
â€¢ Ordinary (regular) Annuity & Ordinary Perpetuity â€“ Cash flows start at end of first
time period
â€¢ Perpetuity Due & Annuity Due â€“ Cash Flows start immediately
PV Perpetuity (ordinary) = C
r
PV Perpetuity due = PV Ordinary Perpetuity x (1 +r)
Basic Annuity Formulas:
PVannuity = PVA = C x PVAF (note: C = PMT)
FV annuity = FVA = C x FVAF (future value annuity factor)
Annuity Due:
PV (Annuity Due) = PV(Simple Annuity) Ã— (1+r)
FV (Annuity Due) = FV (Simple Annuity) Ã— (1+r)
Example 2: Delayed Annuity
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
E) \$451.64

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

2
EFFECTIVE ANNUAL INTEREST RATES (EAR) â€“ see Lecture 3 (TVM) Notes
Two Options:
EAR = Compounded rate
EAR = (1 + im)m -1
APR = Finding nominal rate using simple interest
APR = im x m
Note:
EAR = APR with annual compounding
EAR > APR when interest in calculated more than once/yr
Example 3: EAR
You are expected to pay \$1,883.33 per month on a one-year loan with a
principal of \$20,000. What is the EAR of this loan?
A) 13.00%
B) 13.80%
C) 23.19%
D) 25.82%
E) 16.55%
Example 4: Mortgages: You want to buy a house that costs \$400,000. You make a 20% down
payment and finance the rest with a 25 year mortgage. The mortgage has a five year renewal
term for which the annual mortgage rate is 6.25% compounded semi-annually. What will the
remaining principal of the loan be at the end of the 5-year term?
A) \$185,780.
B) \$196,670.
C) \$245,450.
D) \$288,480.
E) \$400,000

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

3
BONDS
Terminology
â€¢ Par Value
â€¢ Maturity Date
â€¢ Coupons
â€¢ Discount Rate
Also referred to as market interest rate ,or the current interest rate that the market is
demanding of similar securities Also known as its yield to maturity.
* Do not mix-up COUPON RATE and MARKET INTEREST RATE
â€¢ They are usually different.
â€¢ If they are the same, (i.e. coupon rate = market interest rate), then bond will
sell at par value or \$1000)
Valuation of Bonds
Current Price = PV bond payments = PV (Coupons) + PV (Face Value)
3 TYPES OF BOND PROBLEMS:
1. Pricing Problems:
2. Return Problems:
3. Combination Problems
First asked to find a bond price at a point in time and then calculate a return if you hold it to
maturity or another point in time.
Example 5: Bonds
You bought a bond with a 7% annual coupon rate at its par value of \$1,000 three years ago.
The bond had an original maturity of 10 years. Today, the yield to maturity of the bond has
increased to 8% annually. The bond pays coupons semi-annually. Assume coupons are not
reinvested.
a) What is the current yield of the bond today?
A) 8.0%
B) 7.39%
C) 7.09%
D) 8.39%
E) 5.54%
5B. A government bond carries a 6% coupon rate, pays semi-annual coupons, and has
a \$1,000 face value. If you purchase it today at \$1,015 and expect to sell it 4 years from
now at \$1,040, what would be your annual rate of return if the coupons are reinvested at
4% APR semi-annually compounded?
A)
3.1654%
B)
6.3309%
C)
6.9579%
D)
27.8314%
E)
16.5464%
###### You're Reading a Preview

Unlock to view full version