FIN2601
EXAM PACK
,FINANCIAL MANAGEMENT - FIN2601
EXAM REVISION QUESTIONS AND ANSWERS
Question 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
3. R49,497.00
4. R137,286.00
Correct Answer: Option 2
Explanation: This is an ordinary annuity present value problem. Using the
present value formula for an annuity: $PVA = PMT \times (PVIFA_{8\%, 20}) =
3,000 \times 9.818 = R29,454.00$.
Question 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 and the balance is invested at 10% per annum compound
interest for 5 years. What will the approximate end value of the investment be?
1. R18,318
2. R25,146
3. R27,330
4. R29,340
Correct Answer: Option 3
, Explanation: First, find the future value of the 5-year annuity: $FVA = 4,000
\times (FVIFA_{15\%, 5}) = 4,000 \times 6.742 = R26,968$. Subtract the
withdrawal: $R26,968 - R10,000 = R16,968$. Then, compound this remaining
balance for another 5 years at 10%: $FV = 16,968 \times (FVIF_{10\%, 5}) =
16,968 \times 1.611 = R27,335.40$ (closest to Option 3).
Question 3
An investor invests R2,000 annually (at the beginning of each year) for five successive
years into a savings 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 value of his investment will be closest to:
1. R12,544.00
2. R12,796.35
3. R14,247.69
4. R15,226.08
Correct Answer: Option 3
Explanation: Since deposits are made at the beginning of each year, this is an
annuity due. The future value after 5 years at 10% is R13,431.22. After
withdrawing R2,210.22, the remaining balance is $R13,431.22 - R2,210.22 =
R11,221$. Reinvesting this balance at 12% compounded monthly ($i = 12\% / 12
= 1\%$, $N = 2 \times 12 = 24$ months) yields an end value of $R11,221 \times
(1 + 0.01)^{24} = R14,247.69$.
Question 4
You will receive 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 years?
, 1. R819
2. R918
3. R1,564
4. R1,700
Correct Answer: Option 2
Explanation: Calculate the present value of a single future amount: $PV = FV
\times (PVIF_{8\%, 8}) = 1,700 \times 0.54 = R918$.
Question 5
The present value of R2,000 to be received 10 years from today, assuming an
opportunity cost of 15%, is:
1. R494
2. R771
3. R881
4. R5,187
Correct Answer: Option 1
Explanation: Using the present value formula: $PV = 2,000 \times (PVIF_{15\%,
10}) = 2,000 \times 0.247 = R494$.
Question 6
Mr Nkosi plans to buy a bicycle for R5,000 in $4\frac{1}{2}$ years' time. If the interest
rate is 16% compounded quarterly, how much should he invest today (round off to the
nearest whole number)?
1. R1,500
2. R2,240
3. R2,468
4. R3,377
EXAM PACK
,FINANCIAL MANAGEMENT - FIN2601
EXAM REVISION QUESTIONS AND ANSWERS
Question 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
3. R49,497.00
4. R137,286.00
Correct Answer: Option 2
Explanation: This is an ordinary annuity present value problem. Using the
present value formula for an annuity: $PVA = PMT \times (PVIFA_{8\%, 20}) =
3,000 \times 9.818 = R29,454.00$.
Question 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 and the balance is invested at 10% per annum compound
interest for 5 years. What will the approximate end value of the investment be?
1. R18,318
2. R25,146
3. R27,330
4. R29,340
Correct Answer: Option 3
, Explanation: First, find the future value of the 5-year annuity: $FVA = 4,000
\times (FVIFA_{15\%, 5}) = 4,000 \times 6.742 = R26,968$. Subtract the
withdrawal: $R26,968 - R10,000 = R16,968$. Then, compound this remaining
balance for another 5 years at 10%: $FV = 16,968 \times (FVIF_{10\%, 5}) =
16,968 \times 1.611 = R27,335.40$ (closest to Option 3).
Question 3
An investor invests R2,000 annually (at the beginning of each year) for five successive
years into a savings 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 value of his investment will be closest to:
1. R12,544.00
2. R12,796.35
3. R14,247.69
4. R15,226.08
Correct Answer: Option 3
Explanation: Since deposits are made at the beginning of each year, this is an
annuity due. The future value after 5 years at 10% is R13,431.22. After
withdrawing R2,210.22, the remaining balance is $R13,431.22 - R2,210.22 =
R11,221$. Reinvesting this balance at 12% compounded monthly ($i = 12\% / 12
= 1\%$, $N = 2 \times 12 = 24$ months) yields an end value of $R11,221 \times
(1 + 0.01)^{24} = R14,247.69$.
Question 4
You will receive 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 years?
, 1. R819
2. R918
3. R1,564
4. R1,700
Correct Answer: Option 2
Explanation: Calculate the present value of a single future amount: $PV = FV
\times (PVIF_{8\%, 8}) = 1,700 \times 0.54 = R918$.
Question 5
The present value of R2,000 to be received 10 years from today, assuming an
opportunity cost of 15%, is:
1. R494
2. R771
3. R881
4. R5,187
Correct Answer: Option 1
Explanation: Using the present value formula: $PV = 2,000 \times (PVIF_{15\%,
10}) = 2,000 \times 0.247 = R494$.
Question 6
Mr Nkosi plans to buy a bicycle for R5,000 in $4\frac{1}{2}$ years' time. If the interest
rate is 16% compounded quarterly, how much should he invest today (round off to the
nearest whole number)?
1. R1,500
2. R2,240
3. R2,468
4. R3,377
