FIN2601 Exam Questions AND ANSWERS WITH WORKINGS

Page 1 of 116 FIN2601 Exam Questions 1. You have been offered a project paying R3 000 at the end of each year for the next 20 years. What is the maximum amount of money you would invest in this project if you expect an 8 percent rate of return on your investment? 1. R13 953,49 2. R29 454,00 Answer is 2 3. R49 497,00 4. R137 286,00 Workings: PMT = 3 000 N = 20 I = 8 FV = 0 Comp PV Or manually: ( ) = 3000 X 9,818 = 29454,00 2. You invested R4 000 annually (at the end of each year) for 5 successive years in a savings account at 15% per annum compounded interest. At the end of the fifth year you withdraw R10 000 an d the balance is invested at 10% per annum compound interest for 5 years. What will the approximate end value of the investment be? 1. R18 31 8 2. R25146 3. R27 330 Answer is 3 4. R29 340 Workings: PMT = -4000 N = 5 I = 15 PV = 0 Comp FV = 26 969,525 26 969,525 – 10 000 = 16 969,525 PV = 16 969,525 N = 5 I = 10 PMT = 0 Comp FV = 27 329,589708 Page 2 of 116 Or manually ( ) = 4000 X 6,742 = 26 968 26 968 – 10 000 = 16 968 = 16 968 X 1,611 = 27335,4 3. An investor invests R2000 annually (at the beginning of each year) for five successive years into a sav ings account paying 10 percent compound interest per annum. At the end of the year, he withdraws R2 210, 22 of the accumulated amount and reinvests the balance into an account paying 12 percent interest per annum compounded monthly for two years. The end v alue of his investment will be closest to. 1. R12 544,00 2. R12 796,35 3. R14 247,69 Answer 4. R15 226,08 Workings: Mode: Beginning PMT: -2000 N = 5 I = 10 PV = 0 Comp FV = 13 431, 22 13 431, 22 – 2 210, 22 = 11 221 Mode: End PV = -11 221 I = 12/12 = 1 N = 2 X 12 = 24 PMT = 0 Comp FV = 14 247, 692491 4. You will rece ive an amount of R1 700 eight ( 8) years from now. However, if you could receive the amount right now and invest it, you would be able to earn 8% interest per annum on the amount. What would the amount be worth if you could receive it now instead of waiting eight year. 1. R 819 2. R 918 Answer 3. R1 564 4. R1700 Page 3 of 116 Workings: FV = 1700 N = 8 I = 8 PMT = 0 Comp PV = 918, 457104 OR manually: = 1700 X 0, 54 =918 5. The present value of R2000 to be received 10 years from today, assuming an opportunity cost of 15%, is 1. R 494 Answer 2. R 771 3. R 881 4. R5 187 Workings: FV = 2000 N = 10 I = 15 PMT = 0 Comp PV = 494, 369412 Or manually: = 2000 X 0,247 = 494 6. Mr Nkosi plans to buy a bicycle for R5 000 in 4½ year’s time. If the interest rate is 16% compounded quarterly, how much should he invest today (round off to the nearest whol e number)? 1. R1 500 2. R2 240 3. R2 468 Answer 4. R3 377 Workings: FV = 5000 N = 4,5 X 4 = 18 I = 16/4 = 4 PMT = 0 Comp PV = 2 468, 140605 Page 4 of 116 Or manually = 5000 X 0,494 =2470 7. You invest R 3 600 per year for 10 successive yea rs (at the end of each year) in a savings account at,15% per annum compound interest. Which one of the following is closest to the end value in the savings account? 1. R73 094,40 Answer 2. R74 390,60 3. R83 094,40 4. R93 940,60 Workings: PMT = -3600 I = 15 N = 10 PV = 0 Comp FV = 73 093, 385657 Or manually ( ) = 3 600 X 20,304 = 73 094,40 8. R100 is received at the beginning of year 1, R 200 is received at the beginning of year 2 and R 300 is received at the beginning of year 3 lf the cash flows are deposited at 12% thei r combined future value at the end of year 3 will be 1. R672 2. R727 Answer 3. R1245 4. R1 536 Workings: Year 1 PV = -100 N = 3 I = 12 PMT = 0 Comp FV = 140, 4928 Year 2 PV = -200 N = 2 I = 12 PMT = 0 Comp FV = 250, 88