Temasek Polytechnic Temasek Business School MOCK TEST Business Finance (BAF2002)

DIPLOMA IN ACCOUNTING & FINANCE DIPLOMA IN BUSINESS YEAR 2/SEMESTER 1 Instructions:

Answer
1. If the interest rate is zero, the future value interest factor equals _______. a) b) c) d) 2. -1.000 0.000 1.000* 2.000

For a given period of time, as the discount rate increases, the present value _______. a) b) c) d) changes proportionally decreases* increases remains unchanged FV . n (1+k) k PV

PV = .

3.

Find the future value at the end of year 3 for the following stream of cash flows received at the end of each year. Assume the interest rate was 10% p.a. Year Amount $500 $600 $700

a) b) c)

$1,461.8 $1,658.4 $1,718.0

1

BusinessFinance(BAF2002) ClassTest2003/04

d) $1,965.0* FV = $500 x FVIF(10%, 2) + $600 x FVIF(10%, 1) + $700 = $500 x 1.210 + $600 x 1.100 + $700 = $605 + $660 +700 = $1,965 4. Find the present value for the following stream of cash flows received at the end of each year. Assume the interest rate was 10% p.a. Year $700 $600 $500 a) b) c) d) PV = = = = $1,461.4 $1,479.4 $1,497.4 $1,507.4*
3)

Amount

1 2 3

$700 x PVIF(10%, 1) + $600 X PVIF(10%, 2) + $500 X PVIF(10%, $700 X 0.909 + $600 X 0.826 + $500 X 0.751 $636.3 + 495.6 + 375.5 $1,507.4

5.

If you would like to double your $500 in 9 years, what should be the annual compound interest rate? a) b) c) d) 12% 10% 8%* 6%

$1000 = $500 x FVIF(k, 9) FVIF(k, 9) = 2 K = 8% (See n = 9 and locate 2 or 1.999 k = 8%) 6. Your shares in e-Tech Ltd paid out the following stream of dividends. What is the growth rate in dividends over the period? Beginning of Year 2001 2000 1999 1998 Deposit $ 932 810 740 700

BusinessFinance(BAF2002) ClassTest2003/04

a) b) c) d)

7% 8% 9% 10%* OR FV = PV x FVIF(k, n) $932 = $700 x FVIF(k, 3) FVIF(k, 3) = $932/$700 = 1.331 FVIF Table, k = 10%.

PV = FV x PVIF (k, n) $700 = $932 x PVIF(k, 3) PVIF (k, 3) = $700 / $932 = 0.751 Refer to the PVIF Table.

OR

7. Miss Sutra needs $20,000 to buy her dream car. In her search for a low cost loan, she has gathered the following information from two local banks. Which of her following conclusions is correct? Bank BCO AMB a) b) c) d) Annual Payment ($) 8,326.40 6,309.15 Term (years) 3 4

BCOs annual rate is AMBs annual rate BCOs.* BCOs annual rate is AMBs annual rate is

2% points lower than that of AMBs. is 2% points lower than that of 1% point lower than that of AMBs. 1% point lower than that of BCOs.

BCO: PVIFA(k, 3) = AMB: PVIFA(k, 4) =

$20,000/$8,326.40 = 2.402 k=12% $20,000/$6,309.15 = 3.170 k=10%

BCO - AMB = 2% points per annum

**** End of Paper ****

BusinessFinance(BAF2002) ClassTest2003/04