FIN 305 Final Exam Solutions: Principles of Real
Estate Finance |Questions and Answers Latest
Updated (Graded A+)
UNIVERSITY OF BOTSWANA
DEPARTMENT OF ACCOUNTING AND FINANCE
FINAL EXAMINATION SOLUTIONS
COURSE NO: FIN 305 DURATION: 2HRS DATE: DECEMBER, 2025
TITLE OF PAPER: PRINCIPLES OF REAL ESTATE FINANCE TOTAL MARKS: 60
SUBJECT: FINANCE TITLE OF EXAMINATION: BFIN YEAR 3
INSTRUCTIONS
1. There are four (4) questions in this paper.
2. Answer ALL.
3. Show all supporting work (including formulae)
4. Give your answer to 2 decimal places where appropriate
5. The use of unauthorized material is strictly prohibited.
6. Financial tables are attached at the end.
DO NOT OPEN THIS PAPER UNTIL YOU ARE TOLD TO DO SO BY THE
INVIGILATION
NO OF PAGES: 5
(Including this one)
1
, QUESTION 1
(A) Let’s assume Bank Gaborone offers a 30 year, P150 000 adjustable rate mortgage(ARM) for
building purposes with the following terms:
Initial interest rate = 7%
Index=one year treasury securities
Payments reset each year
Margin= 2%
Interest rate cap =1%
Discount points=2%
Fully amortising, however negative amortizing allowed if cap is reached.
The index to which the ARM is tied to are as follows: beginning of year (BOY) 2 =7%,
(BOY) 3=8.5%
Required: Compute payment and ending loan balance for the first 3 years. 17 marks
YEAR 1
I=7% n=30x12=360 FV=0 PV=P150 000
PV = PMT [MPVIFOAi,n]
PMT=PV/ [MPVIFOA7%,360]
=150000/[150.307568]
=P997.95 (2 marks)
EOY 1;
I=7% n=12 FV=? PV=P150 000 PMT=997.95
PV = PMT [MPVIFOA 7%,12] + FV[MPVIF 7%,12]
15000=997.95 [11.557120] +FV [0.932583]
15000=11533.47 + FV (0.932583)
FV= (10 000-11533.47)/ 0.932583
=P148 476.36 (3 marks)
YEAR 2
I uncapped =7%+2=9% I capped=7%+1%=8% n=348 FV=0 PV=P148 476.36
PV = PMT [MPVIFOAi,n]
PMT=PV/ [MPVIFOA8%,348]
= P148 476.36/[135.145031]
=P1 098.64 (2 marks)
EOY 2;
I=8% n=12 FV=? PV= P148 476.36 PMT= P1098.64
PV = PMT [MPVIFOA 8%,12] + FV[MPVIF 8%,12]
P148 476.36 = P1098.64 [11.495782] +FV [0.923361]
P148 476.36 =12629.78 + FV (0.923361)
FV= (148 476.36 -12629.78)/ 0.923361
=P147 121.85 (3 marks)
YEAR 3;
I uncapped =8.5%+2=10.5% I capped=8.5%+1%=9.5% n=336 FV=0
PV=P147 121.85
PV = PMT [MPVIFOAi,n]
PMT=PV/ [MPVIFOA9.5%,336]
= P147 121.85/[(122.504036+112.617635)/2]
2
Estate Finance |Questions and Answers Latest
Updated (Graded A+)
UNIVERSITY OF BOTSWANA
DEPARTMENT OF ACCOUNTING AND FINANCE
FINAL EXAMINATION SOLUTIONS
COURSE NO: FIN 305 DURATION: 2HRS DATE: DECEMBER, 2025
TITLE OF PAPER: PRINCIPLES OF REAL ESTATE FINANCE TOTAL MARKS: 60
SUBJECT: FINANCE TITLE OF EXAMINATION: BFIN YEAR 3
INSTRUCTIONS
1. There are four (4) questions in this paper.
2. Answer ALL.
3. Show all supporting work (including formulae)
4. Give your answer to 2 decimal places where appropriate
5. The use of unauthorized material is strictly prohibited.
6. Financial tables are attached at the end.
DO NOT OPEN THIS PAPER UNTIL YOU ARE TOLD TO DO SO BY THE
INVIGILATION
NO OF PAGES: 5
(Including this one)
1
, QUESTION 1
(A) Let’s assume Bank Gaborone offers a 30 year, P150 000 adjustable rate mortgage(ARM) for
building purposes with the following terms:
Initial interest rate = 7%
Index=one year treasury securities
Payments reset each year
Margin= 2%
Interest rate cap =1%
Discount points=2%
Fully amortising, however negative amortizing allowed if cap is reached.
The index to which the ARM is tied to are as follows: beginning of year (BOY) 2 =7%,
(BOY) 3=8.5%
Required: Compute payment and ending loan balance for the first 3 years. 17 marks
YEAR 1
I=7% n=30x12=360 FV=0 PV=P150 000
PV = PMT [MPVIFOAi,n]
PMT=PV/ [MPVIFOA7%,360]
=150000/[150.307568]
=P997.95 (2 marks)
EOY 1;
I=7% n=12 FV=? PV=P150 000 PMT=997.95
PV = PMT [MPVIFOA 7%,12] + FV[MPVIF 7%,12]
15000=997.95 [11.557120] +FV [0.932583]
15000=11533.47 + FV (0.932583)
FV= (10 000-11533.47)/ 0.932583
=P148 476.36 (3 marks)
YEAR 2
I uncapped =7%+2=9% I capped=7%+1%=8% n=348 FV=0 PV=P148 476.36
PV = PMT [MPVIFOAi,n]
PMT=PV/ [MPVIFOA8%,348]
= P148 476.36/[135.145031]
=P1 098.64 (2 marks)
EOY 2;
I=8% n=12 FV=? PV= P148 476.36 PMT= P1098.64
PV = PMT [MPVIFOA 8%,12] + FV[MPVIF 8%,12]
P148 476.36 = P1098.64 [11.495782] +FV [0.923361]
P148 476.36 =12629.78 + FV (0.923361)
FV= (148 476.36 -12629.78)/ 0.923361
=P147 121.85 (3 marks)
YEAR 3;
I uncapped =8.5%+2=10.5% I capped=8.5%+1%=9.5% n=336 FV=0
PV=P147 121.85
PV = PMT [MPVIFOAi,n]
PMT=PV/ [MPVIFOA9.5%,336]
= P147 121.85/[(122.504036+112.617635)/2]
2
