School

York UniversityDepartment

Administrative StudiesCourse Code

ADMS 3530Professor

AlagurajahStudy Guide

FinalThis

**preview**shows pages 1-3. to view the full**18 pages of the document.**ADMS 3530 3.0 FINAL EXAM, TYPE X FALL 2016

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Name Section ID #

AP/ADMS 3530 3.0 Finance

Final Exam – Fall 2016

Sunday, 18 December, 2016

Type X Exam

Instructors and Sections

Kwok Ho Section A, Fridays, 11:30am - 2:30pm

Kwok Ho Section E, Wednesdays, 11:30am - 2:30pm

Orlando Lopez Section B, Tuesdays, 7pm - 10pm

Samuel Alagurajah Section C, Wednesdays, 4pm - 7pm

Samuel Alagurajah Section F, Tuesdays, 4pm - 7pm

Irvin Pestano Section D, Thursdays, 4pm - 7pm

Lois King Section G, Internet

This exam consists of 50 multiple choice questions worth 100 marks. Choose the response that

best answers each question. Circle your answers below, and fill in your answers on the bubble

sheet. Only the bubble sheet is used to determine your exam score. Please write your name and

ID # both at the top of this cover page and on the bubble sheet. Also, please write the type of your

exam (X or Y) on the bubble sheet.

Please note the following points

1) Read the questions carefully and use your time efficiently.

2) Choose the answers that are closest to yours, because of possible rounding.

3) Keep at least 4 decimal places in your calculations and at least 2 in your final answers and at least 6

for the interest rates.

4) Unless otherwise stated, interest rates are annual, and bonds pay semi-annual coupons and have

a face value (or par value) of $1,000.

5) You may use the back of the exam paper as your scrap paper.

6) Instructors and invigilators will not answer questions during the exam.

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ADMS 3530 3.0 FINAL EXAM, TYPE X FALL 2016

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1. Irene plans to save and invest annually, for the next 20 years, as follows:

Years 1-5: $3,500 per year

Years 6-7: $0 because she will take leave from work to get an MBA

Years 8-20: $5,000 per year

If she can earn 6% per year, and her contributions are made at the beginning of the years, how

much money will she have at the end of 20 years?

A) $150,196

B) $163,664

C) $87,450

D) $232,759

E) $123,888

Solution: A

She will have ($3,500){FVIFAD[(6%,5)}FVIF(6%,15) + ($5,000)FVIFAD(6%, 13)

= 50,120.70 + 100,075.33 = $150,196.02

2. In 2016 you purchased a condo in Toronto for $275,000. You made a down payment of 20%

and financed the rest over 25 years at 3.5% (APR semi-annually compounded). What is your

monthly payment on the mortgage?

A) $1,024.18

B) $1,047.43

C) $1,101.37

D) $1,235.66

E) $1,098.39

Solution: E

The mortgage amount is $275,000 x 80% or $220,000 amortized over 25 years.

The monthly interest rate can be calculated as follows.

EAR = (1 + 0.035/2)² - 1= 0.03530625,

Period (monthly) Rate is (1 + 0.03530625) 1/12 = 0.00289562.

Solve for monthly payment given PV = $220,000; N = 300; I / Y = 0.289562.

PMT is $1,098.39 per month.

3. What is the coupon rate of a 15 year bond, which is currently selling for $1,618.98? The bond’s

face value is $1,000; yield to maturity is 9% and the coupon is paid semi-annually.

A) 16.6%

B) 9.3%

C) 8.3%

D) 15.1%

E) 18.3%

Solution: A

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ADMS 3530 3.0 FINAL EXAM, TYPE X FALL 2016

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Using the financial calculator: PV = 1618.98; I/Y = 4.5; n = 30; FV = 1,000

Compute PMT = $83 per period. Annual coupon = $166

Coupon rate = 166/1,000 = 16.6%

4. What is the effective annual rate of return (EAR) for an investor who pays $1,100.47 for a bond

with a 6.5% coupon and sells the bond two years later for $1,227.19? Assume that coupons

are payable semiannually and reinvested at APR of 6%.

A) 23.9%

B) 11.9%

C) 14.7%

D) 14.9%

E) 11.3%

Solution: E

Rate of Return = (Income + Capital Gain) / Initial Price

Rate of Return = [($32.5)[FVIFA(3%, 4 periods)] + ($1,227.19-$1,100.47)] / $1,100.47

= [135.97 + 126.72]/1,100.47 = .238705

Annual Rate of Return (EAR) = (1.238705)^(0.5) -1 = .1129 or 11.3%

5. Paul Edith Inc. paid dividend of $1.22 per share for the year just ended. The company

dividends are expected to grow at a constant rate per year forever. The company has

maintained a dividend payout ratio of 40%, and the return on equity (ROE) on the retained

earnings is 20%. If the company is currently selling at a price of $50, what is the required rate

of return that the shareholders need?

A) 14.73%

B) 14.44%

C) 10.64%

D) 10.44%

E) 12%

Solution: A

The sustainable growth rate, g = (1-0.40)(0.20) = 0.12

The required rate of return = DIV(1)/ P(0) + g = (1.22)(1.12)/50 + 0.12 = 14.73%

6. ABN Company is expected to pay dividends per share of $1.00, $1.25, and $1.31 in the next

three years. It is expected that beginning in the 4th year, the company’s dividend will grow at

constant rate of 4% forever. If the required rate of return on the equity is 10%, what is the

current stock price?

A) 21.33

B) 23.18

C) 18.78

D) 19.22

E) 19.99

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