FIN700 – PG – Financial Management

FIN700 – PG – Financial Management – QUIZ 2 Chapter 5 – Mark ……..

Please download and complete the Quiz questions and bring to Tutorial in Week 3 for marking and recording.
There are 10 Questions on this Quiz paper. Tutor’s Name…………………………………………..
Student No.: ________________________Student Name:________________________________________
SECTION A. 5 Multiple Choice Questions. Please circle correct answer to each question.
1. A invests in a property that pays him 14% annually. If A invests $325, calculate A's simple interest
component at the end of 24 months.
A. $119
B. $109
C. $91
D. $90.
2. Suppose you need $400 to buy textbooks next year. You can earn 7 percent on your money. How much do
you have to invest today?
A. $337.83
B. $373.83
C. $373.33
D. $428.00.
3. Present value is:
A. FV * (1+r)^t
B. FV / (1+r)^t
C. FV / (1-r)^t
D. FV * (1+R)*T.
4. You are interested in buying a property that will cost you $10 million. You have $2.3 million. If you earn
interest at the rate of 5% per year, how long will you have to wait before you buy this property?
A. 28.12 years
B. 29.12 years
C. 30.12 years
D. 31.12 years.
5. You are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and
one is an annuity-due. Which of the following statements is false? [HINT: See Text, End of Chapter 5, Q. 52.]
A. The ordinary annuity must have a lower present value than the annuity-due
B. The ordinary annuity must have a lower future value than the annuity-due
C. The annuity-due must have the same present value as the ordinary annuity
D. the two annuities will differ in present value by the amount (1 + r).

Quiz 2 is continued on next page.


[FIN700 – QUIZ 2 – continued.]
SECTION B. Short Answer Questions. Please answer in the spaces provided. Show all workings.
6. Starting today, A contributes $2,000 every year into a retirement account paying 8% per annum compound
interest. If A retires in 30 years, just before the 31 st annual contribution is due, how much will she have in her
account? [Show answer correct to the nearer dollar.]
ANS. This is an annuity due.
FV(30) = R * [{1.08)**30 – 1} / 0.08] * (1.08)
= 2,000 * 113.2832111 * 1.08.
= $226,566.42 * 1.08
= $244,692.

7. A limited company currently pays a cash dividend of $0.50 per share. You believe that the dividend will be
increased by 4% each year, indefinitely. What will the dividend be in eight years (correct to the nearer cent)?
ANS. DIV (30) = DIV (0) * (1.04)**8
= $0.50 * 1.36856905
= $0.6842845
= $0.68.
8. You would like to retire in 50 years, as a millionaire. If you have $20 000 today what rate of return do you
need to earn to achieve your goal? [Show answer as a percentage, correct to 2 decimal places].
ANS. FV(50) = P(0) * [1 + r) **t
$1,000,000 = $20,000 * (1 + r) **t.
(1 + r )**t = 1,000,000 / 20,000 = 50.
(1 + r)**50 = 50.
{1 + r ) = 50 **0.02 = 1,08138.= 8.14%. p.a.

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