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Final

ADMS 3530 Final: 3530-Final Exam-Type X Solutions.F16.postExam


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

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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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