EXAM CODE T1

NAME: STUDENT I.D.:

University of Toronto ACT 240H1F - TERM TEST 1 12th of October 2007 Instructor - Andrei Badescu

NOTES: 1. Non-programmable calculators are allowed. 2. Scrap paper is to be handed in with this book. It is OK to write on book. 3. This is a closed book exam. 4. Multiple choice: only your letter answer on the scantron sheet will be graded. 5. 10 points correct, two if blank, zero points if wrong. 6. So expectation if you guess is the same as leaving a blank. 7. Timing: 50 minutes. 8. Make sure you have indicated your letter answers on the scantron sheet table before time is up. 9. Please stay in your seats and do not talk till all papers have been collected. 10. Photo ID on desk during exam please. 11. Good luck! DO NOT FORGET !!! Complete both the name and the ID on your booklet and on the scantron.

EXAM CODE T1

1. Which of the following expressions is correct? (I) (II) (III)

1 sn|

1 an|

+d

sn| = (1 + i)n+1 an| sn| = sn+1| 1

(A) II only (B) I and II only (C) II and III only (D) I, II, and III (E) The correct answer is not given by (A), (B), (C), or (D).

2. (Section 4, problem 12, FM manual) Which of the following are characteristics of perpetuitiesimmediate ? I. The payments are made at the end of each period. II. Payments continue forever. III.The present value is equal to the rst payment divided by the annual effective discount rate.

(A) II only (B) I and II only (C) II and III only (D) I, II, and III (E) The correct answer is not given by (A), (B), (C), or (D).

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3. Calculate the nominal rate of discount convertible semi-annually that is equivalent to a nominal rate of interest of 20% per year convertible monthly (round to the closest decimal). (A) 18.0% (B) 18.3% (C) 18.6% (D) 18.9% (E) 19.2%

4. John deposits 10, 000 in a saving account which he assumes is paying 7% per annum interest effective. He has calculated that after 7 years he will be able to buy the hang glider he wants if its price inates at a rate of 3% per annum effective. In fact the hang gliders price inates at only 1% per annum and the interest rate on the account is dropped to 5% per annum immediately after he makes the deposit. How many years does he have to wait for the hang glider? (A) Less than 3 years (B) 3 years but less than 4 years (C) 4 years but less than 5 years (D) 5 years but less than 6 years (E) 6 years or more

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5. Find the accumulated value of a 10-year annuity immediate of 100 dollars per year if the annual effective rate of interest is 5% for the rst 6 years and 4% for the last 4 years. Calculate to the nearest 5. A) 1205 B) 1210 C) 1215 D) 1220 E) 1225

6. (Section 1, problem 2, FM manual) At an annual effective interest rate of i, i > 0, the following are all equal: (i) the present value of 10000 at the end of 6 years; (ii) the sum of the present values of 6000 at the end of year t and 56000 at the of year 2t; (iii) 5000 immediately. Calculate the present value of a payment of 8000 at the end of year t + 6 using the same annual effective interest rate. A) 1000 B) 1414 C) 984 D) 1120 E) 950

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7. (Broverman 3rd Ed. Exercise 1.5.2) Tawny makes a deposit into a bank account which credits interest at a nominal rate of 8% per annum, convertible semiannually. At the same time, Fabio deposits 500 into a different bank account, which is credited with simple interest at rate h. At the end of ve years, the force of interest on the two accounts are equal, and Fabios account has accumulated to Z. Determine Z to the nearest 5. (A) 820 (B) 810 (C) 830 (D) 800 (E) The correct answer is not given by (A), (B), (C) or (D)

8. A 20- year immediate annuity is payable monthly. Immediate after the 43-rd payment has been made, the present value of the remaining annuity payments is calculated to be X. N is the number of payments after which the present value of the remaining annuity payments is less than X for the rst 2 time. You are given d(4) = 0.08. Find N . A) 171 B) 172 C) 173 D) 174 E) 175

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9. (Broverman 3rd Ed. Exercise 1.1.3d)) 2500 is invested. Find the accumulated value of the investment 10 years after, assuming a 3-month interest rate of 2% compounded every three month (to the nearest 5). A) 4500 B) 4850 C) 5520 D) 5850 E) The correct answer is not given by (A), (B), (C), or (D).

10. (Section 4, problem 3, FM manual) Victor wants to purchase a perpetuity paying 100 per year with the rst payment due at the end of year 11. He can purchase it by either: (i) paying 90 per year at the end of each year for 10 years; or (ii) paying K per year at the end of each year for the rst 5 years and nothing for the next 5 years. Calculate K (to the nearest 5). A) 150 B) 160 C) 170 D) 175 E) The correct answer is not given by (A), (B), (C), or (D).

ANSWER TO QUESTION 11 on the next page. 6

EXAM CODE T1

11. In the right corner of your exam booklet you have the EXAM CODE. Circle in the scantron: (A) if you have EXAM CODE T1. (B) if you have EXAM CODE T2. (C) if you have EXAM CODE T3.