Mathematical Methods for Finance
Test Questions
Course Introduction
Mathematical Methods for Finance introduces students to the essential mathematical tools and techniques used in the analysis of financial markets and instruments. The course covers topics such as linear algebra, calculus, probability theory, stochastic processes, and differential equations with a focus on applications in finance, including option pricing, risk management, portfolio optimization, and the modeling of asset prices. Through a blend of theory and practical examples, students develop the quantitative skills necessary to understand and solve complex problems in modern financial engineering and quantitative finance.
Recommended Textbook
Mathematics of Finance 8th Edition by Robert Brown
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8 Chapters
674 Verified Questions
674 Flashcards
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Page 2
Chapter 1: Simple Interest and Simple Discount
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) A debt of $60,000 is to be paid off by installments of $20,000 in 20 days from today,$1500 in 60 days from today and a final payment of $X in 85 days from today.If simple interest is charged at r = 16% and the declining balance method is used,what is X?
A)$40,149.32
B)$40,172.09
C)$40,180.74
D)$41,585.76
Answer: B
Q2) A merchant receives an invoice for a motor boat for $5000 with term 4/30,n/100.In order to take advantage of discount,he wants to borrow the required money.If he can borrow at r = 14%,how much money does he save?
A)$74.08
B)$71.12
C)$65.75
D)$63.12
Answer: B
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Chapter 2: Compound Interest
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) What is the accumulated value of $15,000 over 6 years and 5 months if j<sub>4</sub> = 10% and the exact method of accumulating is used? (Answer to the nearest dollar)
A)$27,411
B)$27,981
C)$28,039
D)$28,271
Answer: D
Q2) $25,000 was deposited into an investment account earning interest at a nominal rate of j<sub>2</sub> = x% for 10 years.You are given that the corresponding total amount of interest earned in the first four years is $9,012.22.Determine x.
A)6.25%
B)6.55%
C)7.85%
D)8.00%
Answer: C
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4
Chapter 3: Simple Annuities
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) Jacques takes out a loan and agrees to pay it back with payments of $500 at the end of every 6-months for 10 years at j2 = 8% (20 payments in total).He makes the first 3 payments (time 1 to 3),but misses the next 3 (time 4 to 6).What single payment would he need to pay at the time of the 7th payment (time 7)that would make up for the 3 missed payments AND pay off the remaining payments?
A)$4992.82
B)$5492.82
C)$6326.15
D)$7116.05
Answer: D
Q2) Trish needs to have $20,000 one year from now.She plans to make 9 equal monthly deposits,first deposit made today.What is the size of each deposit needed if the money is deposited into an account paying j<sub>12</sub> = 6%?
A)$2135.12
B)$2145.80
C)$2156.53
D)$2178.15
Answer: A
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Page 5
Chapter 4: General and Other Annuities
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79 Verified Questions
79 Flashcards
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Sample Questions
Q1) A person aged 25 will contribute 5% of his annual earnings to a pension plan.Suppose he is currently earning $60,000 per year and will get an annual raise of 3%.He is expecting to retire in 40-years at age 65.If the interest rate is j<sub>1</sub> = 7%,how much will he have accumulated at age 65? (Assume salary is paid in one lump sum at the end of each year.Answer to nearest dollar. )
A)$939,922
B)$878,432
C)$904,784
D)$868,930
Q2) A $3000 loan is to be repaid with quarterly payments or $R over five years,first payment due 3 months from now.What is R if j<sub>2</sub> = 10%?
A)$191.89
B)$388.51
C)$190.84
D)$342.24
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Chapter 5: Repayment of Debts
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85 Verified Questions
85 Flashcards
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Sample Questions
Q1) A loan of $A is taken out at j<sub>12</sub> = 6% and is repaid with monthly payments of $184.91.The principal portion of the 12<sup>th</sup> monthly payment is $115.00.What is A? (Answer to the nearest dollar)
A)$12,564
B)$12,684
C)$15,210
D)$15,318
Q2) A corporation takes out a $100,000 loan to be repaid over 6-years with quarterly payments at j<sub>4</sub> = 10%.The total interest to be paid on the loan over the 6 years is $34,190.77.Using the sum of digits method,the outstanding balance of the loan immediately after the 16<sup>th</sup> payment is $40,627.40.How much of the 17<sup>th</sup> payment goes towards interest using the sum of digits method?
A)$1218.82
B)$1025.72
C)$1015.69
D)$911.75
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Chapter 6: Bonds
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90 Flashcards
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Sample Questions
Q1) Jim buys an 8 year $10,000 bond paying interest at j<sub>2</sub> = 6%.The bond is redeemable at 98.5.Jim strips off the coupons and sells the strip bond to Kim,who desires a yield of j<sub>12</sub> = 6%.What price does Kim pay for the bond?
A)$6231.67
B)$6195.24
C)$6138.19
D)$6102.31
Q2) A $4000 accumulation bond (compound interest bond)pays interest at j<sub>2</sub> = 8% and is redeemable for $4100 in 10-years.It is bought to yield j<sub>2</sub> = 7%.What is the price of this bond?
A)$4454.99
B)$4334.51
C)$4045.64
D)$3936.22
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Chapter 7: Business Decisions, Capital Budgeting and Depreciation
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) An asset with an initial value of $15,000 has a salvage value of $2000 after 10 years.What is the absolute value of the difference between the depreciation expenses entered in the books in the seventh year under the straight-line method and under the declining-balance method?
A)$682.88
B)$482.87
C)$631.99
D)$2239.43
Q2) An airplane costing $5 million is expected to be flown 800,000 miles over its lifetime of 8 years,at which time it can be sold for $400,000.After 6 years,the total depreciation using the physical service method is $3.8 million.How many miles is the airplane flown in total over its last 2 years (years 7 and 8)? (Answer to the nearest mile)
A)128,000
B)139,130
C)192,000
D)208,696
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Page 9
Chapter 8: Contingent Payments
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Sample Questions
Q1) A hydro company finds that 80% of its customers pay a given monthly bill in full.Suppose 2 customers are chosen at random from the list of all customers.What is the probability that at least one of the two customers will pay their next monthly bill in full?
A)0.32
B)0.64
C)0.80
D)0.96
Q2) Recent statistics show that the stock market (as measured by the TSE index)goes up in a day about 60% of the time and goes down the other 40% of the time.Statistics also show that if the market goes up one day,then it goes up the next day 70% of the time and down 30% of the time.But if the market goes down one day,then it goes up the next day 80% of the time and down 20% of the time.What is the probability that in two consecutive days,the market goes in the same direction (either up or down)on both days?
A)62%
B)52%
C)50%
D)42%
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Page 10