BARTER ECONOMY

1. How many price ratios do exist in a barter economy if there are 33 commodities to
be exchanged?
Answer: 528

SURPLUS FUNDS

2. Calculate the consumption of a person if wages is $45,000, interest and dividend

income is $5,000, a down payment on a newly constructed house is $8,000 and
lending in financial markets is $4,000.
Answer: $38,000

3. Calculate the surplus funds of a business firm if it has gross sales of $9 million
and total expenses of $7.5 million; it wants to undertake a capital investment of
$0.5 million and pays out $0.5 million in dividends.
Answer: $1 million
TIME VALUE OF MONEY

4. Calculate the future value in 5 years from now of 265,000 that (a) appreciates and
(b) depreciates by 2% per year.
Answer: (a) 292,581.41
(b) 239,539.01

5. Calculate the present value, if the future value is 700,000, interest rate is 7% and
maturity period is 7 years.
Answer: 435,924.82

6. Which project is the best business decision (use the concepts of NPV and BEP)?

0 year 1 year 2 year 3 year 4 year

Alfa -200 130 40 70 50
Beta -250 30 100 150 70
Suppose that project Alfa is financed by investor’s own funds of 50 (expected
return 15%), by bank loan of 100,000 at the rate of 7% p.a. and by issued bonds
with annual coupon rate of 5%. And project Beta is financed by investor’s own
funds of 150,000 (expected return 15%) and by bank loan of 100,000 at the rate of
7%.
Answer: NPV α =44.68, NPV β =8.98
7. Calculate the effective rate of interest, if interest of 5% is accrued (a) simple
monthly, (b) compound monthly and (c) continuously.
Answer: (a) 60%
(b) 5.12%
(c) 5.13%

8. Estimate the interest payments on a loan of $30,000 (issued on the 2nd of

February) to be paid on the 20th of May at 5% interest compounded monthly
under act/act day-count convention (suppose that current year is a leap year).
Answer: 444.97

9. Calculate the term, if interest rate is 10% compound yearly, present value is
100,000 and future value is 340,000.
Answer: 12.84 or 12 years and 10 months

10.Calculate the interest rate compounded monthly, if present value is 100,000,

future value is 125,000 and maturity period is 3 years.

Solution:

Variant A (the best):

m ×n 12× 3
r r
S=P × 1+ ( ) m
125,000=100,000 × 1+ ( 12 )
( √ 125,000
36

100,000
−1 ) × 12=r =0.0746121842

Variant B (of mine):

n 3
S=P × (1+ r ) 125,000=100,000 × (1+ r )

125,000
√
3

100,000
−1=r=0.07721734 5

i m 12
i
i e = 1+ ( )
m
−1 (
0.07721734 5= 1+
12 ) −1
( 12√ 1.077217345−1 ) × 12=r =0.0746121841

11.Calculate the final payment, if a borrower has two simple loans: one of 100,000 at
15% p.a. due in 5 years and another of 300,000 at 10% p.a. due in 3 years; but he
 wants to replace them by one payment of 70,000 now and another payment in 4
years from now. The current interest rate is 11.5%
Answer: 517,417.69

12.Calculate the weighted average cost of capital, if 1/3 of initial investment is

financed at 14% p.a. and 2/3 of initial investment is financed at 10% p.a.
Answer: 11.33%

13.Calculate the annuity, if principal is 100,000, interest rate is 15%, payment period
is a year, and maturity period is 15 years.
Answer: 17,101.71
PRICES OF FINANCIAL INSTRUMENTS

14.Calculate the price of a 5-year bond at the beginning of the 3rd year, if principal is
1,000, coupon rate is 10% and current interest rate is 7%.
Answer: 1,078.73

15.Calculate the price of a consol, if the coupon payment is 400 per year and the
interest rate is 3%.
Answer: 13,333.33

16.Calculate the current price of a zero-coupon bond, if nominal value is 1,000, YTM
is 15% and term to maturity is 3 years.
Answer: 657.52
THE YIELD

17.What is the nominal yield if the bond that pays 50 annual coupons was bought at a
discount, say, for 900 instead of 1000 currency units?
Answer: 5%

18.What is the current yield if the bond with 5% annual coupon was bought at a
discount, say, for 900 instead of 1000 currency units?
Answer: 5.5556%

19.What is the yield to maturity on a 7,000 face value discount bond maturing in 7
years that sells for 6,500?
Answer: 1.0643%

TIMING OF PAYMENTS
20.Display graphically cash flows (calculate repayment of the principal amount and
interest for each period) on a differentiated-payment loan, if the principal amount
is 10,000, maturity is 4 years, interest rate is 10% per year, and frequency of
payments is annual.
Answer:

21.Display graphically cash flows (calculate repayment of the principal amount and
interest for each period) on a fixed-payment loan, if the principal amount is
10,000, maturity is 4 years, interest rate is 10% per year, and frequency of
payments is annual.
Answer: