School

York UniversityDepartment

Administrative StudiesCourse Code

ADMS 3530Professor

AlagurajahStudy Guide

FinalThis

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ADMS 3530 Final Exam Tutorial – Solutions

Example 1: Multiple Cash Flows

Answer B

Detailed solution:

0 1 2 r = 4%

|-----------|-------------I FV2 = $3032.32

$200 “Y” 2400

You can use either

Option a) FV formula and bring all cash flows to t=2 or

Option b) PV formula and bring all cash flows to t=0

Option a) Bring all cash flows to t=2 (use FV or compound)

200(1 + r)2 + Y(1 + r)1 + 2400 = 3032.32

200(1.04)2 + Y (1.04) + 2400 = 3032.32

216.32 + Y(1.04) + 2400 = 3032.32

Y(1.04) = 3032.32 – 2400 – 216.32

Y(1.04) = 416

Y = 416 / (1.04)

Y = $400

Option b) Bring all cash flows to t=0 (use PV and discount)

200 + Y/(1 + r)1 + 2400/(1 + r)2 = 3032.32/ (1 + r )2

Y = $400.00

Example 2: Delayed Annuity

Answer A

Using your calculator:

PMT = $100, I = 9, n= 4, Fv =0, COMP PV

→ PV = $323.97 at t=1 !!

Bring PV1 to PV0

PV0 = $323.97 / (1.09)1 = $297.22

Example 3: EAR

Answer D

Using your calculator: PMT = $1883.33, n = 12, PV = $20,000, FV=0, Comp “i”

→ i= 1.9322%

EAR = (1+.019322)12 -1 = 25.82%

Example 4: Mortgages

Answer D

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The monthly interest rate is given by:

(1 + im )12 = 1 + EAR = (1 + 3125%)² = 1.076406, that is im = 0.5142%

The monthly payment for the 20-year loan

320,000 = PMT x PVIFA(0.5142%,300)

PMT = $2,095.22

Mortgage remaining at the end of 5 years → 240 months remaining:

Using your calculator:

PMt = $2095.22, n=240, i=.5142, Fv=0, COMP PV

→ PV = 288,480.10

Example 5: Bonds

5A) Solution: B) 7.39%

Current Yield = Annual Coupon Payment/ Bond Price

Step 1: Find price of bond today (7 years remaining)

Using your calculator:

PMT = 70/2 = 35.00, n = 7 x 2 = 14, FV = 1000, i = 8/2 = 4%, COMP PV

➔ PV = -947.18

-> Current Yield = $70/$947.18 = 7.39%

Step 2: Find rate of return over holding period (3 years)

5B) Solution B) 6.3309%

4-year Rate of Return = [30 x FVIFA(2%,8) + 1,040 – 1,015] / 1,015 = 27.8314% The annual

rate of return is (1+27.8314%)1/4 – 1 = 6.3309%

5C) Solution: E)12.26%

FV 1,100

PMT 86

PV -925

N 5

CPT I/Y = 12.26

YTC = 12.26%

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