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EXAM @ STUDY GUIDE Fi 302
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This 41 page Study Guide was uploaded by Mallyna Sessions on Tuesday February 17, 2015. The Study Guide belongs to Fi 302 at University of Alabama - Tuscaloosa taught by Arnatt in Fall2015. Since its upload, it has received 354 views. For similar materials see Intro Into Business finance in Business at University of Alabama - Tuscaloosa.
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Date Created: 02/17/15
Structure of Finance Learning Module 2 List of Question and SelfTest Codes Entries below refer to codes for questions appearing on exam 2 All questions exist as ungraded and unrestricted practice SelfTests in the course shell accessible online anytimeanywhere Exam 2 Chapters 456 25 questions 15 xed 10from26 115 maximum paints 2 075 points points Exam Questi quot points quot 395535252312quot quot 1 5 L873 2 5 M050 3 5 O7RROR1 ROR3c LS4c LSBa 4 3 ORBSSB L824 7 5 5 ORLS14 L815 7 6 5 a LS10a 7 7 7 5 l7 CY10a 7 8 5 CY21 9 7 3 7 ORFF6 TR15 TR33 10 5 ORFV7 FV9 11 5 FV5 12 5 FV6 13 3 ORTR3 T5147 TR5 14 5 0RPi7 PV9 15 5 PV10b 16 5 FV17 17 3 0RTR1 TR2 TR27 18 5 TS1b 19 5 AM3d 20 5 ORAM5a AMQC 7 21 5 032a 22 5 CBS 23 3 ORFF23 TR32 TR36 7 24 5 CB10a 7 25 5 7 0330 7 Question 1 LS7a 5 marks An account was established 6 years ago with an initial deposit Today the account is credited with annual interest of 329 The interest rate is 44 compounded annually No other deposits or withdrawals have been made How much is the endofday balance a 7086 b 10375 0 9432 d 7795 6 8574 IMW 39A 83M Maw39aao 3937 74777 OOHJl ow alum artMt mHW 7147 32 1 7806 Question 2 MC5c 5 marks Here are two future expenses that you want to save for today 3000 payable in 6 years and 6200 payable in 9 years You make an investment today that perfectly finances the future expenses if the investment earns a target 98 average annual rate of return compounded annually The investment indeed grows sufficiently to finance your first expense Unfortunately for the entire investment horizon your actual annual rate of return falls short of the target by 180 basis points per year When it is time to pay the second expense how much money do you lack a 1003 b 829 c 1214 d 1103 9 912 wwezfn 2 I N 6 N a rota W W OMB W 01 I ha 0 PV car r NW390 PV MDT 4 2672832 39 2 l3 PM T o PM39T C d Rams84 Fv 3000 Fv 6900 GMW momma 80 WW vsv lm min W87 839 27 CWQW SMS OO laom W B 39W Wn PV 39 0 9 w M Mm ww wgw N 6 N 3 V 3 W 8 Pv J Z8Al PV 3 q98m PM 0 PM T o FV CPT 9 6515qu Fv CP39T z morsels Hmwwc g M 6 8 6100118 256 LSLUq C Question 3 1 of 4 ROR1 5 marks A venture capitalists provides a company equity financing of 150 million After 7 years the company repurchases the equity for 475 million There are no other cash flows between the two Find the average annual geometric rate of return and also find the cumulative rate of return the average annual geometric ror is 179 and the cumulative ror is 2492 the average annual geometric ror is 237 and the cumulative ror is 2492 the average annual geometric ror is 237 and the cumulative ror is 2167 the average annual geometric ror is 179 and the cumulative ror is 2167 the average annual geometric ror is 206 and the cumulative ror is 2167 weove F mdmximi ywampam 75 91 ISO 0 W stste 34657 QOQ LJ 3 5 39 l Q Question 3 2 of 4 ROR3c 5 marks Two years ago you purchased a stock for 44 One year ago the price had moved to 11 Today it is at 59 Which one statement about the annual average rate of return is correct The geometric average return is 182 and the arithmetic average retum is 1807 The geometric average return is 137 and the arithmetic average return is 1807 The geometric average return is 158 and the arithmetic average return is 1571 a b c The geometric average return is 137 and the arithmetic average return is 1571 d e The geometric average return is 158 and the arithmetic average return is 1807 5 i m Q0215 N MW 2 R012 2 clec43911 JLLeoA W Jam WW4 wwmfi aloe Iii1 o1s 75quot 202 34 LvBs se 4363570 I 397S 36 36 807713 2 0458 1987 Question 3 3 of 4 LS4c 5 marks A deposit exactly 10 years ago of 1400 earns 75 annual interest compounded annually There have been no other deposits or withdrawals As of today how much total interestonprincipal has accumulated a 1398 b 955 0 1050 d 1155 e 1271 mm 0 w003 01ml Lil00 at 52 x low 1050 Question 3 4 of 4 LSSa 5 marks A savings account was established with 50000 exactly 4 years ago The account earns 60 compounded annually Othenivise the account has been left alone When the annual interest is credited to the account today how much interest is credited a 3248 b 3573 c 2440 d 2684 9 2953 TONMMWMWW 3453th with WWWWCQWWW 3d zwx Eww 50000 x roequot sciss Or N 3 fo 6 PV 50000 PM o FV CPT 5 501951 WWW S i Sl x 67 3513 ueetlen v4 391 Di 33 3 rnerlte The Federel Fteertre Eeerrj let Direetere trees three significant teele t influenee rrrerleet activity titlhleh ef theee etetemente ie the meet eeeuret eeeerietlen et ene ef theee Fed teele e The e ielel getternment federal tunee rate ie the interest rete enereed by Federal Reeenre Dietriet teenlte te member euhle end private eer39rlte t1 the reeenre requirement en member trenit eunte regulatee the emeunt e i leene tiret trenlte rile1r lend te buelneee en individual trenewere 11 Buying end selling eurr eneiee end getternment eeetrritiee in tire gletrel i inenelel merketpleee eeueee wideeereerzl gpenie end eeitel ight tin Twe etteieeez E and CS ere rreet e Nene the A mC ehieee ere eerreet i n 7 r i39l 39 r a 7439 r 39r 7f l I gt B an 7 V 7 r l l 39 i 3 F in frji r WF u I quotI 1 I F715 I P i L Li i i r rtmeLe i tear i T 7 u r mxn iffy t r i A aaeatran 4 a at a Leaa a raarhe ram wish ta parehaee in 11 years an item that taaay eaate 1 t t I The eaat ie expected ta in ate at an annual rate at 43 Van matte a aepaeit t day that aeratenattyr f irtaneee the future aurehaee The absentee intereet rate that year eatrthga earria ta 92 Describe the I39EiEii n between year damat i f ii ni and the aaaaunt rate a the ajepaait equate the real eaet at 1 eeaurttea at the hamihat rat h the ae aeett equate the namtnal at dteeauhta at the real rate r the realt ihtereat rate ta 43 a quottee aheteee aha Gr are aarreet e Harte at the A B E ehaieee are earreet A 39 39 39 F v r m Iquot H L 1 u t 11 Q Ema EEJTJ quot quotFT a1 gate 4 r 1 e Question 5 1 of 2 L814 5 marks Today your account was credited with its annual interest of 16650 The account was established some time ago with a 31800 initial deposit No other deposits or withdrawals have been made The account earns 120 annual interest How many years ago was the account established a 15 b 14 c 18 d 16 e 17 M L l66 o 23904 a EDMH x127 DGSO lease 7 B I I 2 v 1 P 0403 N CPT a 1 Ar W E Pv Straoo PMT o FV 12551100 MW M 132750 MFV M Ma s MCIM1130 Question 5 2 of 2 L815 5 marks Some time ago a 109800 initial deposit opened an account No other deposits or withdrawals have been made Today the annual interest was credited to the account Total lifetime interest now equals 176525 The account earns 58 annual interest How many years ago was the account established a 13 b 17 c 14 d 15 e 16 lw toasaoo Kai M1 352 Emma octsoo 16595 2 186315 N CPT dr 7 W 98 PV o t Boo E PM39T o Fv 2863125 Question 6 LS10a 5 marks In exactly 16 months a bill of 13540 is due Today you deposit money such that if the account earns a target rate of return of 112 per month the bill is perfectly financed Unfortunately your account earns 30 basis points less than your target When the bill is due how much money do you lack a 629 b 472 0 571 d 429 e 520 N wlc AaLkmwww N is Vt H9 Pv LPT 113701219 PM39T o FV 135 0 RMW rain a a 30 ma4 Pant 03 lM min Hit ore 0827 CW Va u 082 A CPT v mom Vow LML lasuo 13mm imam Question 7 CY10a 5 marks In exactly 20 years a bill of 19400 is due Today you deposit money such that if the account earns a target rate of return of 990 per annum compounded monthly the bill is perfectly financed No other deposits or withdrawals have been made Your account actually accumulates 16035 What was the actual average annual percentage rate a 813 b 1190 C 1082 d 983 e 894 COW mad 39 LA 0 I HM Gino 92 W 089 5A 9w MAL N x 7 W Va 0895 PV CPT gt 27003 PM 0 FV lamPoo VmW a Mm um 43035 CW FV to leozs M CPT Vt arms Lo M Pyg WI 40 PegWm 39 O 7JlSY 17 Question 8 CY21 5 marks Suppliers X and Z are competing to sell your company supplies The full price of supplies from supplier X is 2300 and they offer these payment plans 53 discount if you pay within 25 days otherwise pay full price within 165 days The full price with supplier Z is 2460 and they offer these payment plans 41 discount if you pay within 25 days othenlvise pay full price within 130 days Your company financing rate is 124 compounded daily Find the supplier and payment plan that represent the lowest present value of cost a If you buy from supplier X the lowest present value of cost occurs when you pay the full price on day 165 b If you buy from supplier Z the lowest present value of cost occurs when you pay the full price on day 130 c The lowest possible present value of cost occurs when you pay the discounted price from supplier X d Two choices B and C are correct e The three A BC choices are all correct CW PVwmd uWWW SWX65W 25 N 65 N 15 V7 139Jlsss 1 M Pv arra fl 75 pv CPT ld o PMT C PM o FV 2300 r v 2300 have 213918l SW 2 l3O on 9 5 than N 30 N 25 V39f Am VLf W N CPT mags PV CP T 233a GMT 0 PM o WMMWW Question 9 1 of 3 FF6 3 marks By how many basis points does 42 differ from 94 a 690 b 790 c 450 d 520 e 600 x W M 00m 1quot49 quot 00 B w o Q H7a UO 2 90 import20 520 MW ueetten e et39 3 TIME 3 mertte 39t utttet ere preeer de nitierte fer PWF t FUIFAL end the eieunt rete e the preeent uetue 39irtter39eet teeter tier era enmity PUtFAErEM eeuete the tetet eeeurriutletiert tr er eeeeunt earning the peritt39ie rete r thet reeutte trem eeriee vet N enedetler depeette tea the future uetue tintereet teeter fr era eertuite FUtFeErNL equete the ntiet depeett ith er eeeeunt eereirte the pertiedie rate r that e eertee t1 erre ttell er withgdrewete e the leli eeeurtt rete e the pe edje eereentiege return eutttreeted trem the tuture eeeh few ter een39iputtng ereeeet eelue d Twe eheieee it end er eerreet e Nene et the AEG eheieee ere E tTEE E F 7 i r r e F 3911 v 39 a w 1 Le tsretreat fr ueetien Q 3 t 3L THEE 3 manta Frent a eenee at periettiie retee at return there are twe ereeeeuree fer eernputing the average rate at return per parted the arithmetie average and the gearnetrie average ta the teltewieg etaternent aeut theee nee etattetiee TRUE er FaLEE The geemetrie average eerifttfie rate at return alwaye a greater than er equal ta the arritthntetie average eerieate rate at return a True Fatee u Question 10 1 of 2 FV7 5 marks Your parents contribute 130 monthly to a college savings plan for you that earns 990 compounded monthly The first deposit was exactly 15 years ago Find the account balance after today s monthly deposit and crediting of monthly interest a 44595 b 49054 0 59355 d 53959 e 40541 Mating MAM MM Prawns Nstiz l8l N lei WY q qil PV 0 PMT l 50 FV CPTa 535 t6C t 9 WM o MMWWO IBOaAM6WlSOWz N 80 1 1 abet 2 PV 430 PMquot39 l SO FY CPT 39gt 530l5 7t Question 10 2 of 2 FV9 5 marks An account is today credited with its monthly interest thereby bringing the account balance to 6660 The interest rate is 660 compounded monthly You plan to make monthly withdrawals of 55 each The first withdrawal is in exactly one month and the last in exactly 12 years Find the account balance immediately after the last withdrawal 8 3516 b 3197 0 2906 d 2642 6 2402 L W 1A TWM W Map 3m mow ac PV 6660 Maw W 00 N llxllflH Ll39 V1 691 055 N l 1 W 065 Pv 6660 FV CPT a 26L Question 11 FV5 5 marks An account is today credited with its annual interest thereby bringing the account balance to 6760 The interest rate is 930 compounded annually You plan to make annual withdrawals of 700 each The first withdrawal is in exactly one year and the last in exactly 15 years Find the account balance immediately after the last withdrawal 3 4616 b 5078 0 6144 d 5585 e 6758 W to 6760 Tm M W PV 6760 N is Vt olz Pv e eo PMT 100 FV CPT gt Haste Question 12 FV6 5 marks Today you inherit an account with a balance of 8800 For a while you don t do anything with the account but it continues to accrue interest Exactly 17 months from today you start an ambitious savings plan and deposit 240 into the account You plan to deposit that much each month Exactly 40 months from today you rconsider your plan make your last deposit and make no additional deposits You nonetheless leave the account alone and it continues to accrue interest at a rate f 74 compounded monthly You finally close the account exactly 7 years from today How much is the total accumulation a 30424 b 22858 0 27659 d 20780 e 25144 M ejJvorL 1 CW MMWMWWWWM W 39FV WWMPV Q Mani tle N l V f ThuI9 Pv 88oo PMT o FV cpr 0t1o t6O W Lu gt Mama W39HO N 2x Wmmeo wgt V f W Pv Gt39lookeo PM T39 9lo FV CPT 9 WALFO39B 8 MW me N LtLy 1 W pv lquotlLlLl O8b HWY 0 Fl cPTJ 11868 Question 12 FV6 5 marks Today you inherit an account with a balance of 8800 For a while you don t do anything with the account but it continues to accrue interest Exactly 17 months from today you start an ambitious savings plan and deposit 240 into the account You plan to deposit that much each month Exactly 40 months from today you reconsider your plan make your last deposit and make no additional deposits You nonetheless leave the account alone and it continues to accrue interest at a rate of 74 compounded monthly You finally close the account exactly 7 years from today How much is the total accumulation a 30424 b 22858 C 27659 d 20780 e 25144 MW 2 W cg 93800 N 21 gm W1 W A Titl2 Py 830cgt WW 0 FY CPT gt mum s7 1 Qwaoxlkpm N 11 W PV 0 WW lA O FV CPT l 73957 NLH l xLtm 7V 6l8397539l PM i o FV LPT 8O 1SS FM W llquotlJ l839llO 2225 uestisn i s n at at res s merits Stresses aternative invstments ersmise sash flew streams that bassess easel iives Faithen stresses the simple sam at the sash tievvs tar eash investment is the same amsunt Given a besitve interest rate whish investment has the smallest present valuequot a there is ns reliabie relatisnshib behveen the istributisn st sash flaws and present vaiue an investment whish generates equal sash flaws eash series an investment that is being s isssuntetl by a email ei39ssstint rate an investment vvhish generates rnsst sash tisvvs at the anti at its his an investment vvhish generates mast sash fievvs at the beginning at its lite PEP217 eestisn 13 2 st 3 rev 3 merits Stresses tvvs alternative investments gram ise sash fisw streams that psssess egual lives Further sagsass the simple sum It the sash fisws tar sash invstment is the same ameuntt Given a gasitive interest rate whish investment has the biggest present vasequot a an investment whish generates egaai sash flaws eash genes is an investment whish generates mast Flsvvs at the anti at its lite there is ns reliable relatisnshi between the distributisn st sash iiws ans erasent value an nvestment whish generates mast sash tlsvvs at the beginning at its life e an investment that is being sisseented by a arge dissebnt rate 3913 assess is is at at res s merits nesse hvs egnaivssst alternative investments premise sash tisvv streams that increases astral ives Furthen stresses the emails sam at the after tan sash tiews t sr eash invstment is the same amstint Given a eesitive interest rate vvhsh investment has the biggest gresent vaiue an investment that has relativer high sales revenues an investment lwhish generates equal sash flaws eash perils there is ns reliable riatisnshig behveen the distributisn st sash aws an present valuequot an investment that is being tiisssuntett by a large Wissstint rater e an investment whish generates msst sash tisvrs at the beginning at its life has iiiLT 2 Ft IMHL LiLi 239 3tquot T v i I r z 393 7 n i Pr Lar g JJ T i i 395 Question 14 1 of 2 PV7 5 marks Afriend received an inheritance 6 years ago and put all funds into an account earning 610 compounded quarterly Exactly one quarter after establishing the account the friend started withdrawing 1350 per quarter Today she ll make another quarterly withdrawal and quarterly interest will be credited to the account and then the balance will be 15687 How much was the friends inheritance a 45825 b 41659 0 37872 d 55448 6 50407 N67lt12J I quotr 6 V 1515 N 24 IA 1625 N cPTe39 37871 1 PMT l360 FV 66 Question 14 2 of 2 PV9 5 marks You might invest in a security that will return aftertax cash flow to you of 1300 per year for 6 years first cash flow one year from now after which the security likely can be sold immediately for 7700 You make an offer to buy the security so that you39ll get a 860 rate of return compounded annually Find the offer price a 8757 b 7961 0 10596 d 9632 e 11655 lam t 99 500 90 no PMT l 500 lug 37700 aim w 40 PW 77OO Thomxw mle39um39gM aoM Pv N E Iq 8 PMT l 3oo FV moo Question 15 PV1 Ob 5 marks You might invest in an asset that will return aftertax cash flow to you of 1300 per month for 45 months first cash flow one month from now and after receiving the last cash flow you ll immediately receive aftertax net proceeds from liquidation equal to 47600 You make an offer to buy the asset so that you ll get your target annual rate of return of 2050 compounded monthly The seller makes a counteroffer that is 4800 higher than your offer Find your annual rate of return if you buy at the counteroffer price and receive the expected cash flows a 211 b 158 c 192 d 144 e 174 N 16 ILr loSAL PV CPT v 62300 16 PMT 300 FV 17 600 M 801 an 325180044 Fa calla My a W My 4800 W 6130026 4800 crewLe Ow UM W W PV 39 6230016 out UAL eer 141300 67GOO26 M fAW PV aw New cP39T Iv 14599 Mao Wang 9 Ra lL S2 3xl7 Fluid7 E Question 16 FV17 5 marks Today you open an account with a 20800 deposit that earns 550 compounded annually You ve set a target for the account so that in exactly 9 years its balance will be 44100 To reach the target you ll adjust the balance annually each year s adjustment will be exactly the same amount and the first adjustment occurs exactly one year from now After the last annual adjustment in exactly 9 years and crediting of that year s interest the account balance exactly equals the target Describe the annual adjustment that you make each year Each year you make a deposit of 1065 Each year you make a withdrawal of 1065 Each year you make a withdrawal of 926 Each year you make a deposit of 926 Each year you make a deposit of 805 99060 N t3i Itr 55 PV 20800 PMT CFT 9 t1 a FV Ll tnlOO Fe M W PM39T Ecru ML LPT FV 33617 Solgmpaamgdx M MM LambM thoo 39 You ijt quotVaJLLc zf ca dt ql quotM i ueetin i it elf 3L TW 3 made Whien etetement deeerjhee the frule ef E e The number ref menthe required fer e deeded te deuble eeuele the deeirnel intereet refer divided by F2 e The eeerevizmete eurrieer ef vere required fer e deeeeit te deueile eeuele TE divided by the eereenitege ntereet rate e The eirrieie eurri flewe redured fer an investment te een39i e peeitive rete er return eduele the nveetn39ient eeet divided ev T2 d The eirrn die eurn ef eee n flewe required fer en inveetment te eern e eeeitive rete ef return eruele the iinveefntent eeet tiniee E e quotthe number ef menthe required fer e deeeeit the deueie eeuele the deeirnei intereet rete time f2 left Hie A It e it 1 397 Z r39f39eiu Ev quot a K e de edth um w eeeten 1 2 t 3L THE quot3 meme Fer tthe eimeile time value lumpeum reietieh with m t tly eemeeemtihg d 39tt ie meet eeeerete etetemettt Fer ell eeeee heitt EUEWHEH eerieteht eeeeet the etetetj u erietzilee tti tien the ihteteet tete deueiee them the tete interest eeeetiy eeuhteen When the term deuhlee then the tetei ihteteet eeeetiy deueiee Men the hegihr39iihg wealth d ubae then the tetei intereet mete thee eeuielee Twe eheieee A and Bi ere eetreet Heme et the Av Et G eheieee ete eetreet e ee ee I k 1 tr I tteetien quot1 3 e1 3 THE 3 meme Eenhe edverttee teene ee thet greet hearrew m rey39 tretn them end they them intereet Theyr eilee edeertie eeeeette e that yew eleven en eeeeunt with them end theyquot I hey ye intereet Which etetement hetew meet Iikety deeetthee the relietiien between the effective eeeeet rete FEAR entt eeeuet eereeeteee fete meet The APR generetlly e trigger then the h Heathen hent te e vertiee fer Ieene theer Itheiy quete the e hentte eeverttee fer eei39te theyt litter etuete the HPRE Twe eheieee e end ere eerreet e Miene Let the A B C eheieee ere eerreet E E t 39 39 a at e t V a q n 5 J J r A e t 39 Iquot E HE meme thirteen J pit g Question 18 TS1b 5 marks You wish to establish an endowment fund that will provide student financial aid awards every semiannum perpetually To finance the scholarships you will make a series of equal deposits into a savings account The deposits will be made semiannually equal to 2800 each with the rst one today and the nal one in 7 years The first award is to be granted one semiannum after the last deposit The savings rate is 530 compounded semiannually How much is each award a 1112 b 1011 0 1223 d 919 e 1345 Tmoguwwwm MWW 9v LuNT cl li N U1 lLf 532 Pv 1800 FV CPT 7 50761 TthWaMmWW 50761 x 1537 26610 HM 9262 13115 1 Question 19 AM3d 5 marks The Company borrowed 209000 at 780 to be repaid monthly over 20 years They just remitted payment number 113 How much interestto date has been paid a 162388 b 147626 0 134205 d 178627 e 122005 N ZOleQJO V3 73931 2 PV DAY1000 WMW PMT cPT a mil2A FV O FVO NmeW W FVgtOJxu HEW Cw N to W5 M J T FV W85 1939 i we W zoapoo HSSquot2db OA o7539 Cut9v W K44 W M 613 6040754 gt Q WVA W5 x Val21 tom6134 kw tran 39 TM M M qne37 Eda076L1 EHJOQ mrmawwummw C Question 20 1 of 2 AM5a 5 marks Your friend is taking out a mortgage for 170000 at 920 repayable with monthly payments over 15 years She respects your financial expertise and asks how many payments will I have to make before I reduce the principal balance by half its original amount You pull out your calculator and tell her the number of payments she39ll make to reduce the balance by half is a 108 b 81 c 89 d 98 e 119 Qummw PM l CPT 4 er H WWEe 70390002 85000 94 quotMa Lo MaoWM dim CW FV 39to 8 ooo M CPT N 2 Hot E Question 20 2 of 2 AMQC 5 marks You have just bought a house by borrowing 190000 at a 1050 annual interest rate compounded monthly repayable with fixed payments over 30 years When finally in the faroff future you make your last payment how much of that last payment will be interest a 1508 D 1133 c 1658 d 1246 e 1371 N 3041 360 I f 39039512 Pv t t0ooo PMT CPT gt trlg soo Fv O CW N to 3S t MA CPT F V l 179v t3 18 qu W Lo l39igt8oo 132243 0 wt Lo um few P641 W W 61 39 Question 21 CBZa 5 marks Consider the following cash flows for two mutually exclusive investments 10 t1 t2 t3 At 900 657 399 162 B 1 060 122 350 1040 Which statement is true a if the financing rate is 15 then project B is the better of the two b if the financing rate is 752 then projects A and B create the same amount of wealth c if the financing rate is 75 then project A is the better of the two d if the financing rate is 183 then project A is the better of the two e if the financing rate is 216 than project B is the better of the two me03 We ram await M03103 We exam await TMWWWWLWWMW39MA CFWOWWJ cat 635 quot o tl t2 t3 F01 1 39 R 007 65quot 3 t l 62 cos M E9 7 00603 172 3759 oi F0 1 H 0 5 100 539 m 886 we see u 1 150 s 1 39 TM 1er cm 8149370 Tawwu LNPv 4 ae uses aia Mmh g39mv39iu g WMWWWoQM memgmm39www2nzquotx WWW lakemow gee note Lo Low Wig077 324 can W13 0910 Question 22 CBS 5 marks The bank issued a 121000 30year mortgage monthly payments with an annual interest rate of 1020 They just received payment number 141 and have decided to sell the loan The buyer of the loan expects to receive an annual rate of return equal to 880 For the original bank that issued the loan what was the internal rate of return a 1058 b 962 c 795 d 875 e 723 c mlI Jot dub MM 943mm W WW LLQULLJLW39J Z N 30x12 quot560 I lo l l Pv llloOO WMWWMWM PMT cPT 4 Momquot701 W M FV o WW Beowiulxmq Pa 2 1 oihO39W tj rams 038567 CWMWW Hmwr mv3erWWI Do www le ba l LlOOOW LHWMWOJ 17510 WW 11 N n1 AM W ossz 7H1 o5 8 Pl uee i ie ef 3 FFEE 3 marks The eeyeeek eerie eeeeeeee the enemy ef e eeeh flew e reemn ere eer e eh erei edeentegee end r dxeeduentegee ef thie eeeeeeme t meeure e the peyhee e perked gee higher im ee ehee te ewe reeeivee eener ether then Meter e e ehrt eyheek periee ie ee er tfheh e Ieng eeyeeek peried the peyleeek eeried meeeuree eee h ewe eeeurringa thgreueaheut the length ef the entire eeeh ew etzreem d Twe eheieee ene ere eerreet The three Ez Eh iiEES ere el eerreet F I u a h h L H I I I I LEquot mg Ti wk I A u Lap5 e quot v r 1L sag Wetter4ij Err I 5 ueetien 23 E ef 3L THEE merits Whet teetere ere relevant fer e heueehele eheeeing tetween errewng wth e l yeer quotwereue e 33 year leen eeeume thet teeea interet reteea enrt ell elee are equal e Tetel litetirne intereet de nitely is mere wth e 3year leen ut that deeen t mean it ie e weree eheieet t1 When the heueehele eeeeete ehttrun liquidity prehlerne ee their eereere eern menee taut fer the engmn they expeet high neerne gremdh then herrewing with a 30year leer theyr be lamentegeeee ea 1tiltthen the heeeehetd eepeete t het in the ehertrun their ueee ter meney will have ew utility hut thet in the tenet run their ueee fer rneneyr wll heme higher titrilitglF then berriewing with e 1 Meet leen they lee edeenteeeeue Twe e heieee t end ere erreet e The three AFC eheieee ere ell eerreet FL I we x 353 Eatetu39 gravest my eiweee g I 5 v Sweetie v a a1 1 39 775 F39I 59H x in v r t Te te ueetien 23 3 et 31 3 mertte Wteh eteteemeht te meet C t tEEiE t 1with the Net preeth Heme MPth and t temet rate efteturh eeheeetequot e The MPH fer e pretest is the tjhzehei ng tete et which the parej39eet39e lFtR ie eere h The NPRquot tier e prejeet ie the emeut tt Let eepiteilizee eeene mie pre it that e etejeet ereetee e Wheh the ereteet e eetuel tiheneihg tete ie Ieee then the iFtFt then the NPV ie peeitiee d TWe ehiteeez ehe ere eerreet e the three At ere elt eerreet I V Er J r39 I w I a I Le quot quot a 4 39 h at Left L3 at g din EVEL 1 1 e7 den Tie is Iquot Question 24 CB10a 5 marks Your company is analyzing purchase of a machine costing 5800 today The investment promises to add 9000 to sales one year from today 12500 two years from today and 13000 three years from today Incremental cash costs should consume 65 of the incremental sales The tax rate is 35 and the company s financing rate is 160 The investment cost is depreciated to zero over a 3year straightline schedule Find the project s net present value and internal rate of return 9993 NPV and IRR equal 1493 and 264 NPV and IRR equal 1974 and 304 NPV and IRR equal 1974 and 264 NPV and IRR equal 1493 and 304 NPV and IRR equal 1717 and 304 SM W C1000 ilsoo Aww gtltto 353 360 lit 375 pqmrem ECVQGS zpwms ignq Nbquot canL 41 21247 35207 5800 53156 Fa SEWme 3 tau W M3333 gags 376 90c lWCFsmciin CFO Lot Fot COO F09 cog F03 58 00 Etarec tr 232ml 1 3520quot a r1 1 u 3631 1 39 quot MR NPV V3000 15 50 2958 6767 3631Kquot OPT 5 30470 391le ENTER 1 CF T gt NPvl1l l3 b Question 25 CBBc 5 marks You took out a 30year mortgage monthly payments for 105000 at 870 and payment number 32 is due today You are deciding whether you should refinance the outstanding principal by borrowing at today s lower rate of 740 an amount that pays off the old loan The new loan is for 30 years as of today The total fees for getting the new loan equal 43 of the original loan s outstanding principal The first payment for the new loan would be due one month from today Suppose you pay the fees today with funds from your savings account What is the net present value of the refinancing venture if your personal discount rate is 12 a 5459 b 4963 6 4102 d 4512 e 3729 49w Lam N 360 N 360 ILf B 39quotl 1 Ilf 39 g g i ILf 7iHiI L PV loaooo PV Pv 109oH8 PMT OPT r 822253 PMT M f Pewr cPr 39 39I8 J FV o FV CPT a OZ3O 1S 1 F V O 01lt5oH x 487 Anglo8395 Mmt Um NPV Cunard M 31 3 W 03322 2 3 Lay to M1 New Con lA wo thlloES 44 W 360 W p 7H8Ar CFO lea2035 pa H CO 1 0 39 821113 tilen1 F01 39 3 3113 C02 mm Fog 32 39L MakeLl WWNPVoi39CLLbo WMWWWK CMW CPD 0 CO1 222258 Fot 323 NPV I 1 v2quot1 cPT qu 7Ct0830 6 New CFO llZoBS 41 C01 7393L Fot 560 NPVI I Zlyt cPr va Jean vs 50 unit NPV gjy a a A43 to t 7362H 3975 39 74083035 39 5458 R
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