Camilo Toro-Ramirez

SENECA COLLEGE
FACULTY OF CONTINUING EDUCATION
BUSINESS STUDIES
SEMESTER 2167 - FALL 2016
X'&$qN-NSN N "ESS $S N N N NY

SUBJECT NAME: MATHEMATICS OF FINANCE

SUBJECT CODE: QNM106 N1A
DATE:

TIME ALLOTTED:
November 15,2016

N/A
q dA
MARKS ALLOTTED: 50

WEIGHTING: 10%
/D
EXAMINATION AIDS:
Non Progrommoble Calculotor x

Other: Summdry of formulas and Table 8.2 x

re Number of Doys in q Time Period, os
provided with test

Academic Policy Section 9:

Engaging in any form of academic dishonesty to obtain any type of advantage or credit is
an offence and will not be tolerated by the College. Such offences under this policy include,
but are not limited to, cheating, plagiarism, falsification, impersonation, misrepresentation
and procurement.
.)

Camilo Toro-Ramirez

Question

Robin, is currently 25 years old and wants to retire at age 63. At age 63 Robin wants
enough money to purchase a 27 year annuity that will pay $5,500 per month' tt/onthly
payments should start one month after she reaches age 63. Robin has accumulated
$15,000 at age 25.

Assume a 4o/o annual rate of return on both the fixed term annuity and on her savings.
How much will she have to save each month starting one month from now to age 63 in
order for her to reach her retirement goal?

25yro 63yro *27y 90yro

-------t"------
PVr PMTr FVr
PYz PMTz FVz

PYz=?
FVz=0
PMTz=5,500
i= 4o/o (compounded annually)

ffi
iz= (1+i)" - I = (1*0.0 4)t/tz- f = (1.0410'oaaa33"' - 1 = l'003273739782
iz= 7397 or0.32737397822 %o (compounded montl)( 0{-
& / \lr-
n= 27 xlZ 324 v
+iz -n'
PV, z= PMT
i2

PV2=S,5gg[
t-(t+o
234
,so{Wl=s,soo[ffi1
=5,500[WW]=5,500[I63.2gL78453623399]=898104.8L4g4g286g45
PYz=898,70f.t (rounded to nearest cent) = FVr this is the money needed at 62 years old
to reach retirement goal

Now for PMTr calculation, we have to separate the portion of FVr that corresponds to the
annuity (FV1a) and that portion which corresponds to the initial investment (FVru) of
15,000:
ZSyro 63yro

0 PMTr FVr" (For annuity)

PVr FVru (For savings investnrent)

FVr= FVr,* FVru

 Camilo Toro-Ramirez

Savings investrnents section:

FV*=Pvtu(l+i)"
FV m = 15, 000(1 + O. OO327 37397 822 1rz(oz-zs)
FV n : 1 5, 000(1 . OO327 37 397 8.22 I 1z(38)
FV u = 15, 000(1 . OO327 37397 822 )4s6
FV t = 15, 000(4. 438AL3450388007)
FVn = 66,582.20

Calculating Annuity F"t/ portion:

FV1: FVr"* FVru
898,104.82 = F\ u + 66, 582. ZO
FV1" = 83L,522.62
Calculating PVr:
1-(1+r)-"1
FVro: PMT
I
1 - (1 + O. 0O32737397822)-4s6
B3L,522.62 = PMT
0.oo327373e7822 I

831,522.62
PMT =
1 - (1. oo32737397822)-4s6
o.0032737397822

DtuT _
83L,522.62 83L,522.62
11 - (1. OO327 37 397822)-+so1 - 0.2252854307073
L] o.0032737397822

B3L,522.62 83L,522.62
PIVIT =
7747145692927 = zffi: 3, 513. 79564654L77218
oo3z 9

PMT= 3, 513. B0 (rounded to the nearest cent)