AQ004-3-2 FMTS Final Exam - Marking Scheme Page 1 of 4

ANSWER ALL QUESTIONS (TOTAL 100 MARKS)

QUESTION 1 (20 marks)

10, 000
(a) = 8, 638.38
1.053

(b) (
12
)
1.2 − 1 = 0.01531

(c) Let X be the equal amounts that is to be distributed among the three girls.
X(1.06-4) + X(1.06-12) + X(1.06-16) = 50,000
X(1.6827) = 50,000
X = 29,713.99

 1.0124 − 1 
(d) 250  (1.012) + 1 = 1,280.36
 0.012 

QUESTION 2 (20 marks)

(a) Let X be the withdrawal amount

 1 − 1.08−25 
X  (1.08−14 ) = 8500
 0.08 
X(3.6343) = 8500
X = 2,338.80

 1 − 1.01−n 
(b) 500 (1.01−24 ) = 20,000
 0.01 
500(1.01−n ) = 500 − 20,000(0.01)(1.0124 )
1.01−n = 0.492106
-nlog1.01 = -0.30794
-n = -71.26
n  71
 1 − 1.01 
−71

 (1.01 ) + Y (1.01 ) = 20, 000

−24 −95
500 
 .01 
Y = 129.20

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−1
 1 − 1.005−36 
(c) Monthly repayment amount: 15,000  = 456.33
 0 . 005 
 1.00512 − 1 
B1r = 15,000(1.00512) – 456.33   = 10,296.08
 0..005 
 1.00524 −1 
B2 = 15,000(1.005 ) – 456.33 
r 24
 = 5,302.03
 0..005 
Total principal repaid: 10,296.08 – 5,302.03 = 4,994.05
Interest paid: 456.33(12) – 4994.05 = 481.91

QUESTION 3 (20 marks)

(a) Annual interest payment = 10000  0.1 = $1000

P(1.085 − 1)
10000 =
0.08
Payment, P = $1704.56

1
(b) (i) i = 1.09 12 − 1 = 0.007207
−1
1  1 − 1.007207−360 
Repayment amount: 200,000 = 200,000 
a360|0.007207  0.007207 
= 1,558.96
B3 = 200,000(1.007207 ) – 1,558.96 s36| = 195,190.78
r 36

The amount to be refinanced is 195,190.78(1.025) = 200,070.55

1
i = 1.07512 − 1 = 0.006045
200,070.55
New repayment amount: = 1,409.40
a 324|0.006045

(ii) The amount of savings made each month is

1,558.96 – 1,409.40 = 149.56
The present value of the savings is
149.56 a 324|0.005 = 23,868.51

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QUESTION 4 (20 marks)

(a) (i) NPV for Jaya

=-300,000+154,000/1.1+134,000/1.12+96,000/1.13+96,000/1.14
=-300,000+140,000+110,743.80+72,126.22+65,569.29 = 88,439.31

NPV for Midi

=-300,000+110,000/1.1+110,000/1. 12+110,000/1.13+110,000/1.14
=-300,000+100,000+90,909.09+82,644.63+73,131.48 = 48,685.20

NPV for Teko

=-300,00+86,000/1.1+110,000/1.12+129,000/1.13+176,000/1.14
=-300,000+78,181.82+90,909.09+96,919.61+120,210.40 = 86,270

The best project is Project Jaya. The reason is that it has the highest NPV of
RM88,439.31 compared to the other two projects.

(ii) NPV for Jaya = 0

-300,000+154,000/(1+i)+134,000/(1+i)2+96,000/(1+i)3+96,000/(1+i)4 = 0

When i = 0.24, NPV = 2,298.60

When i = 0.25, NPV =-2,566.40
2298.6(.25) − ( −2566.4)(.24)
IRR = = 0.244725 = 24.4725%
2298.6 − ( −2566.4)

(b) (i) From a two-year stock information

Price = 3a 2| + 102v 2 at 5.5%
= 97.1811

Therefore, from the one-year forward rate information

3 3 + 102
+
1 + i1 (1 + i1 )(1 + f1,1 )
97.1811 =

3 105
97.1811 = +
1 + i1 (1 + i1 )(1.05)
i1 = 5.9877%

(ii) From three-year stock information

10 10 110
108.90 = + +
1 + i1 (1 + i1 ) (1.05) (1 + i1 ) (1.05)(1 + f12,1 )
10 10 110
108.9 = + +
1.059877 1.059877(1.05) 1.059877(1.05)(1 + f 2,1 )
f2,1 = 9.245%

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AQ004-3-2 FMTS Final Exam - Marking Scheme Page 4 of 4

QUESTION 5 (20 marks)

dy 1  85 85( 2) 85(3) 85( 4) 85(5) 1085(6)  1 

(a) = − − − − − −  
dp p  1.12 1.13 1.14 1.15 1.16 1.17  934.67 
− 4163.814
= = −4.45485
934.67

(b) P0 = 85a5| + 1000v 5 = 934.67

i1 = 9%, P− = 977.57
i2 = 11%, P+ = 894.24
894.24 − 2(934.67) + 977.57
Approximate Convexity = = 26.4264
934.67(0.012 )

(−4.45485) 1
(c) − (0.02) + (26.4264)(0.022 ) = 0.086349
1.1 2

Level 2 Asia Pacific University of Technology & Innovation YYYYMMDD