Exam I These problems are meant to give you an ides of the format of the exam. T

Question

Exam I These problems are meant to give you an ides of the format of the exam. These questions are NOT definitive stuty guide, buit can be useful as you are stadying Mfultigle Choice-Clearly circle your awer (unclear or muitigle cireles will be counted wromg 2 .. An investment pays SX in one year, $300 in three years, and $600 in five years. The total peresent value of all the cash flows (inclading X) is equal to $900. If the discount rate is 10 percent, what is A. $332.26 B $22140 C. S426.43 D. $387.92 E. $0.00 you 30 payments of $300 with the first payment in 8 years from now. What should the -ity cost today irthe interest tale is 10%? A. $2,660.62 B. $1,713.46 C. $2,198.86 D. $2418.75 E $3,765.82 3. If the rate on a two-year Treasury security is higher than the rate on a is higher than the rate on a one-year treasury security, according to the unbiased expectations theory, the one-year rate expected one year from now on Treasury security is A. lower than the current Treasury one-year B. higher than the current Treasury one-year rate C the same as the current Treasury one-year rate D the same as the current Treasury two-year rate E. not enough information to determine 4. What are the monthly payments (principal and interest) on a 30-year home mortgage for loan with a fixed interest rate of6% APR? A. $1,199.10 B. $1,687.71 C. $2,055.73 D. $10,000.00 E. $12,000.00

Explanation / Answer

Solution :- 1 According to question :- 900 = x / (1+0.10) + 300 / (1+0.10)3 + 600 / (1+0.10)5 900 = x /1.1 + 300*0.751 + 600*621 900 - 225.40 - 372.55 = x / 1.1 302.25 = x/1.1 x = 1.1*302.25 = 332.475 Therefore the correct answer is (A) Solution :- 2 The present value of the annuity payments after 7 years   = = 500 * PVAF (30 , 10%) = 500*9.4269 = 4713.45 Now the present value of the amount today of this = CF / (1+r)7 = 4713.45/(1.10)7 = 4713.45*0.513 = 2418 Therefore the correct answer is (D) Solution :- 3 The correct answer is (D) the same as the current treasury two year rate Solution :- 4 The value of the loan after the 30 years is = 200000 * (1+0.06)30 = 200000*5.74 1148000 Rate per month = 6% / 12 = 0.50% The Monthly payment of loan = 1148000 = X * FVAF(0.50% , 150) 1148000 = X*1004.515 Therefore X = 1148000 / 1004.515 1193.45 Therefore the correct answer is (a) Hope these all answer will help you and ask if you havce any query in comments and rate it If it is helpful

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