Revision Exercises

Question 1
• If you want to buy a new boat in 4 years time,
and know it will cost $12,500, how much do
you need to invest today at 5% p.a to buy the
boat in 4 years time?
 Answer
• PV = 12500/ (1+0.05) 4

• = $10,283.78
 Question 2
• If you invest $3,500 for 8 years at 2.5% p.a
compounded quarterly, how much will you
have at the end?
• What is the EAR?
 Answer
• FV = 3500(1+0.025)^32
4
• = $4,272.25

• EAR = (1 + 0.025/ 4) ^4 - 1 = 2.5235%

 Question 3
• You require an annual income stream of
$5,200 forever, how much do you need to
invest today at 6% p.a to receive this future
income stream?
 Answer
• PV = 5200/ 0.06 = $86,666.67
Question 4
Answer
Answer
 Question 5
You purchased machinery on installments at the
beginning of 2017. The first payment should be paid
at the end of 2018 and you were asked to cover the
cost of the machinery in 3 years with an installment
of $3800 each year.
You deposit your money at the end of 2017.
If you place money in a 5% p.a. compound interest
account, how much money would you need to
deposit at the end of 2017 to meet your installments
payments?
Answer
Answer
Question 6
Answer
Answer
 Question 7
• If Samsung stock is valued at $120 at the
beginning of the period, and pays $10 in
dividend over the period, and at the end of
the period is valued at $142, what is the HPR?
 Answer
• HPR = (142+10) / 120 = 1.266 -1 = 0.266 * 100
= 26.6%
 Question 8
• What is the arithmetic mean return over this
period for the below returns?

• 3%, 15%, 6%, 11%, 16%, -5%, 9%

 Answer
• 3% + 15% + 6% + 11% + 16% -5% + 9% =

• = 55 / 7 = 7.86%
 Question 9
• What is the SD of the previous question’s
returns?
• i.e 3%, 15%, 6%, 11%, 16%, -5%, 9%
 Answer
• Mean 7.86
• (3 - 7.86)^2 + (15 – 7.86)^2 + (6 – 7.86)^2 +
(11 – 7.86)^2 + (16 – 7.86)^2 + (-5% - 7.86)^2
+ (9 – 7.86)^2 / 7-1
• 23.62 + 50.97 + 3.46 + 9.86 + 66.26 + 165.38 +
1.29 = 320.84 / 6 = 53.47
• Square root 53.47
• SD = 7.31%
 Question 10
• What is the coefficient of variation for the
previous question?
 Answer
• CV = SD/ r

• 7.31/ 7.86 = 0.93

 Question 11
• Suppose the return on short-term government
bonds (perceived to be riskless) is 2.5%. The
market (with a beta of 1) returned 12%.
• Your portfolio has a beta of 1.2.
• 1. According to the CAPM, what is the
expected rate of return for the portfolio?
 Answer
• rj = RF + [bj  (rm – RF)]

• = 2.5 + (1.2 x (12 – 2.5))

• 13.9%
 RATIOS
• Study the ratios so that you know how to use
them to compare between companies. Read
through the slides and other sources for
revision.