FIN2601 Exam questions and answers

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 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. 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

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,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 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 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 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 year.

1. R 819
2. R 918 Answer
3. R1 564
4. R1700

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,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 whole 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


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, Or manually



= 5000 X 0,494
=2470

7. You invest R 3 600 per year for 10 successive years (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% their 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

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