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University of KwaZulu-Natal School of Mathematical Sciences

MATH134: Quantitative Methods I Test 3


Date: Friday 16 May, 2008 Max Time Allowed: 60 min Total Marks: 35 This test contains 19 multiple choice questions. For each question, indicate your answer by marking the corresponding letter on the MCQ answer sheet provided. The mark allocation for each question is given in square brackets [ ]. Negative marking will not be applied. You may use: a ni 1 1 i n i and s ni 1 i n 1 i 2

Q1. Find the effective rate of interest for 11.6% p.a. compounded quarterly? a. 12. 24% b. 12. 11% c. 12. 05% d. 11. 13% e. 8. 95% Answer: B 1
0.116 4

1 0. 12114 12. 11%

Q2. Amanda asks you, "What annual interest rate, compounded quarterly, would make R 1 000 grow to R1 600 over 5 years?" What formula would you apply to work out your answer? 1 m j a. 1 i eff 1 m b. S P1 i n c. S Rs ni d. A Ra ni e. None of the above. Answer: B Q3. What is the right answer to Amandas question? a. 1600 10001
i 4

2 39. 42%

1600 1000 1600 1000


1 5

1 5

b. 1600 10001 i 5 c. 1600 10001 d. 1000 16001 e. 600


1 20

1
1 20 1 20

9. 86% 1 9. 51% 1 9. 29%

i 4 i 4

20 20

4 4

1600 1000 1000 1600

37. 69%

Answer: C Q4. Luvanen is paid R5 000 for an advertising job. He invests the money in an account earning 9% p.a. compounded daily. What formula would you use to find the balance in Luvanens account after 1 year? 1 m j a. 1 i eff 1 m b. S P1 i n c. S Rs ni d. A Ra ni e. None of the above. Answer: B Q5. What value would you use for i in Question 4? a. 0.09 b. 0.09 4 c. 0.09 12 0.09 d. 365 e. None of these Answer: D Q6. What is the balance in Luvanens account after 12 months? a. 5000
1
0.09 12 1 365 0.09 365

60081 Should be 5000 1


0.09 365 365

b. 50001 c. 5000 1 d. 5001 e. 5000

0.09 12 5469 12 0.09 12 5015 365


12

5471

1 1 0.09 365
0.09 365

59904

Answer: B The actual answer is 5471 but B will be marked correct as the nearest answer. Q7. Beauty Ngubane cuts her airtime spending, saving R80 per month, which she invests at 9% p.a. compounded monthly. She want to know how long it will be until her saving account reaches R5 000. Which one of the following statements is true? 1 a. R80 is the present value A in the formula A Ra ni . b. R80 is the present value P in the formula S P1 i n . c. R5 000 is the future value S in the formula S Rs ni . d. R5 000 is the present value A in the formula A Ra ni .

e. R5 000 is the future value S in the formula S P1 i n . Answer: C Q8. How long will it take for her saving account to reach R5 000? n 1 1 0.09 12 a. 80 5000, n 84. 7 months 0.09 b. 80 1
12 0.09 n 12 0.09 12

5000, n 597. 1 months (This is the correct formula

but gives n 51. 45 n c. 5000 801 0.09 , n 553. 4 months 12 d. 5000 801 0. 09 n , n 48. 0 months e. None of these. Answer: E An error in my calculations of the answers meant that the correct answer of 51.45 months was none of these. Q9. When Chabeli buys a car, he is told that he can buy a maintenance plan to cover services and repairs for the next 3 years. The cash price of the maintenance plan is R20 000. If the interest rate is 15% p.a. compounded monthly, how much should Chabeli pay per month if he pays for the maintenance plan in monthly instalments? This question is asking you to find: 1 a. The present value of an annuity b. The future value of an annuity c. The present value of a single amount d. The periodic payment of a future value annuity e. The periodic payment of a present value annuity Answer: E Q10. How much (to the nearest Rand) should Chabeli pay per month for monthly instalments on the maintenance plan? a. 20000 b. 20000 c. 20000 d. 20000
0.15 12 0.15 3 1 12 1 0.15 12 3 1 1 0.15 12 0.15 12 36 1 1 0.15 12 0.15 12 0.15 36 1 12 1

6584. 0 6834. 0 693. 31 443. 31

e. 20000

0. 15 1 0. 15 3 1

: 5759. 5/12 479. 96

Answer: C Q11. At the beginning of January 2005, Lawrence took out a loan of R50 000 to start a catering business. At the end of January 2007 he began a series of 60 monthly payments. Interest on the loan was charged at 18% p.a. compounded monthly. What interest rate should be used in calculating the monthly payments? 1 0.18 a. 12 b. c. d.
0.18 60 0.18 24 0.18 84

e. 0.18 Answer: A Q12. How much were Lawrences monthly payments? a. 500001 b. 500001 c. 50000
0.18 12

24

0.18 12

0.18 12 60 1 1 0.18 12 0.18 12 60 1 1 0.18 12


60

1815. 00 1308. 05

1 1

0.18 12 0.18 12 2

1269. 67
0.18 12 0.18 12

d. 500001 0. 18

1 1

60

1767. 89

e. None of the above. Answer: A This is a deferred annuity. For the first 2 years, the R50 000 loan was gaining interest although no payments were made. The future value of the loan after 24 24 months is 500001 0.18 71475. 14. 12 This amount is what must be repaid in 60 payments. Use the present value formula to find R. 60 1 1 0.18 12 where A 71475. 14 AR 0.18
12

Q13. Suppose that Lawrence inherited a large amount of money and wants to pay the outstanding balance on his loan on 31 May 2008. What amount will he have to pay?2

a. 1815

1 1

0.18 12 0.18 12

43

57211. 04 40021. 56 27057. 38 18927. 80

b. 1269. 67 c. 1815 1

d. 1269. 67

0.18 43 12 0.18 12 0.18 17 1 12 0.18 12 17 1 1 0.18 12 0.18 12

1 1

e. None of these. Answer: A The outstanding balance is the present value of the payments that he would still have had to make, i.e. of 60 - 17 43 payments. The outstanding balance is more than the original debt because the debt had grown 24 to 500001 0.18 71475. over the first 2 years when he wasnt paying 12 anything. Q14. Jakobus sets up a sinking fund to replace his expensive rugby boots. He will need R2 000 to buy a new pair in 1 year from now. He makes monthly payments at the end of each month into the sinking fund, which earns interest at 9% p.a. compounded monthly. What formula should he use to calculate the monthly payment into the sinking fund? [1] m j a. 1 i eff 1 m b. S P1 i n c. S Rs ni d. A Ra ni e. None of the above. Answer: C Q15. How much should Jakobus put into the sinking fund every month? 12 1 0.09 1 12 25015. a. 2000 0.09
12

[2]

b. 2000 c. 2000 d. 2000

0.09 12 12 0.09 12 0.09 12 1 12 1 0.09 12 12 1 1 0.09 12 0.09 12

1 1

22870
1

160
1

175

1 1 0. 09 12 e. 2000 0. 09 Answer: C

279

Q16. Shirika borrows R10 000 at the start of each semester to pay university fees. After 2 years of study, a sponsor offers to pay the debt she has incurred (including interest) as well as a sum for the next 2 years fees. What amount must the sponsor pay if interest is calculated at 12.67% p.a. compounded monthly? Round your answer to the nearest R20. 3 a. 79 540 b. 80 560 c. 83 020 d. 83 420 e. None of these. Answer: D First find the effective hlaf-yearly interest rate when compounding monthly for half a year (6 months). 6 i eff 1 0.1267 1 0. 065045903 per half-year 12 Method 1 Find the future value of the first 5 payments using S Rs ni with n 5 , i 0. 065045903 and R 10000. 5 S 10000 1. 065045903 1 56941. 63 0. 065045903 Add to this the present value of the last 3 payments, which is found using A Ra ni with n 3, i 0. 065045903 and R 10000. 3 A 10000 1 1. 065045903 26482. 52 0. 065045903 56941. 63 26482. 52 83424. 15 (If the interest rate was rounded off you may have got an answer slightly different.) Method 2 Find the present value of the 8 payments and then make this amount into a future value at the end of 4 time periods. Since the payments are at the beginning of the periods, this is an annuity due. There are 4 2 8 half-yearly payments but the first is already a present value. The present value of the annuity is 10 000 7 10000 1 1. 065045903 64836. 33 0. 065045903 This amount must be made into a future value after 4 half-years. S P1 i n 64836. 331. 065045903 4 83424. 14

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