BMAT Final Exam Review - Vretta

Note: No rounding is done until the final answer of each question with the
exception of mortgages in chapter 12 and sinking funds in chapter 13 which are
rounded to the nearest cent.
1. Jeff borrowed $3500 from Carole on October 13, 2015. On what date did Jeff
repay the loan if Carole charged him $103.24 in interest at 8.25% pa?
2. Debts of $1000 due 90 days ago and $1200 due in 120 days are to be repaid
by a single payment made today. What equivalent payment, made today,
will clear the debt if the loans carry a simple interest rate of 8% pa? Choose
today as the focal date and include a well-labelled time diagram as part of
your solution.
3. A debt of $5000 accumulated interest at 8.4% compounded quarterly for 18
months, after which the rate changed to 7.8% compounded semiannually for
the next 9 months. What was the total amount owed after the 27 month
period?
4. A $10,000 loan at 9% compounded monthly is to be repaid by three equal
payments due 6, 9 and 12 months from the date of the loan. What is the
size of the payments? Include a well-labelled time diagram as part of your
solution.
5. Find the effective rate of interest earned on an investment of $10,000 for
three years if the successive rates for the three years were 2.8%, 3% and 4%
compounded quarterly, respectively.
6. The shady investment company offers clients a chance to double their
money by earning 12.8% compounded monthly on one of their investments.
How long would it take a client to earn this return? Express answer in years
and months to the nearest month.
7. Jenny has already accumulated $25,000 in her RRSP. If she contributes $500
at the end of every quarter for the next 15 years what amount will she have
in her RRSP at the end of the 15 year term? Assume that her plan will earn
8% compounded quarterly for the entire term.
8. Katrina purchased a dining room set for $1500 down with the balance to be
paid by 36 monthly payments of $198.12 including interest at 12%
compounded monthly.
a. What was the purchase price of the furniture?
b. What was the balance owed after 20 payments?
9. A $15,000 loan bearing interest at 14% compounded quarterly was repaid
after a period of deferral, by quarterly payments of $872.90 over 10 years.
What was the time interval (nearest month) between the date of the loan
and the start of the annuity?
10.
a. How long will it take monthly payments of $425 to repay a $35,000
loan if the interest rate on the loan is 7% compounded semi-annually?
b. How much will the time to repay the loan be reduced if the payments are
$50 per month larger?
11.
If $120,000 will purchase a 25-year annuity paying $725 at each
months end, what monthly compounded nominal rate and effective rate of
interest are earned by the funds?
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BMAT Final Exam Review - Vretta

12.
What sum of money, invested today in a perpetual fund earning 5.8%
compounded semiannually will sustain quarterly payments of $1200 with the
first payment made
a. immediately?
b. one year from today?
13.
What is the current economic value of an annuity consisting of 20
quarterly payments of $500, if money is worth 6% compounded quarterly for
the first three years and 7% compounded quarterly thereafter?

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BMAT Final Exam Review - Vretta

14.
A prospering business invested its profits of $22,500 in an annuity that
pays equal amounts at the end of every quarter for five years. They will
receive the first payment 2 years from now. Calculate the size of the
payments if the annuity has an interest rate of 6% compounded monthly.
15.
Mitch bought a home entertainment system worth $4800 for 20%
down, with the balance to be paid out over 18 months. Interest on the
account is 17% compounded monthly.
a. What is the size of the month-end payments?
b. Construct a partial amortization schedule showing the details of the
last two payments including the previous balance.
16.
A $25,000 loan at 6% compounded semiannually is to be repaid by
monthly payments over 10 years.
a. How much of the 15th payment will be interest?
b. What principal is repaid in payments 20 to 25 inclusive?
c. What is the size of the final payment?
17.
Jenna purchased a $300,000 condominium. She paid 15% of the
purchase price as a downpayment and received a mortgage for the balance.
She negotiated a fixed rate of 2.9% compounded semiannually which set her
month-end payments at $1515.59.
a. How many payments are required to pay off the mortgage?
b. If she were to round up her payments to the next $100, how many
fewer payments would be required to pay off the mortgage?
18.
A construction company issued bonds for $80,000 for new safety
training courses for their employees. It established a sinking fund to retire
the debt in four years time and made deposits into it at the end of every
three months. Interest on the fund is 5.6% compounded quarterly.
a. What size payments are required at the end of every three months to
meet this goal?
b. Prepare a partial sinking fund schedule showing the details of the last
two payments including the previous balance.
19.
A company sold $100,000 worth of bonds and set up a sinking fund
that was earning 4.2% compounded semiannually to retire the bonds in five
years. It will make equal deposits into the fund at the beginning of every six
months.
a. Calculate the size of the periodic deposits.
b. What is the balance of the fund at the end of payment interval four?
c. Prepare a partial sinking fund schedule showing the details of the first
three payments.
20.
A $10,000, 5.25% coupon bond has 14 years remaining until
maturity. Calculate the amount of premium or discount if the required return
in the bond market is 5.8% compounded semiannually.
21.
A $5000, 4% coupon, 15-year bond was issued on February 12, 2010.
Calculate the bond price on January 19, 2016 if the markets required return
was 3.3% compounded semiannually.

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BMAT Final Exam Review - Vretta

Answers:
1. Feb. 21, 2016
2. $2188.97
3. $5998.57
4. $3564.61
5. 3.31% c.a.
6. 5 years 5 months
7. $139,051.54
8. a. $7464.90
b. $2915.91
9. 1 year 7 months
10.
a. 9 years 4 months
b. 1 year 3 months
11.
j = 5.33%
f = 5.47%
12.
a. $84,554.33
b. $79,855.55
13.
$8550 50
14.
$1456.32
15.
a. $243.19
b. B16 = $476.19
Payment
PMT
Interest
Principal
#
16
17
243.19
6.75
236.44
18
243.15
3.40
239.75
16.
17.
18.
b. B14
Pmt #
14
15
16

a. $112.53
b. $1021.70
a. 216 payments b. 14 fewer payments
a. $4495.66
= $69,000.15
Interest
Fund
PMT
Earned
Increase
4495.66
4495.72

Balance
476.19
239.75
0

c. $276.22

Balance

Book Value

966.00
1042.47

5461.66
5538.19

74,461.81
80,000

10,999.85
5538.19
0

Interest
Earned

Fund
Increase

Balance

Book Value

0
9090.98
18,372.87
27,849.68

100,000
90,909.02
81,627.13
72,150.32

19.
a. $8904.00
b. B4 = $37,525.52
Pmt #
0
1
2
3

PMT
8904
8904
8904

186.98
377.89
572.81

9090.98
9281.89
9476.81

20.
$534.38
21. $5359.16

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