Mathematics of Finance Test
Bank
Course
Introduction
Mathematics of Finance introduces students to the mathematical techniques and models used in analyzing and solving problems in financial contexts. Key topics include the theory of interest, annuities, bonds, amortization schedules, and portfolio optimization. Students explore concepts such as present and future value, yield rates, risk and return analysis, and the mathematics behind financial derivatives like options and futures. Through practical applications and problem-solving, the course equips students with quantitative tools essential for making informed financial decisions in banking, investment, and actuarial science.
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
Source URL: https://quizplus.com/quiz/69258
Sample Questions
Q1) On July 8,2014,Josephine lends Joni $10,000.Joni gives Josephine a 90-day non-interest bearing promissory note with face amount $10,000.On August 12,2014,Josephine sells the note to a finance company that uses a simple interest rate r = 5%.What are the proceeds received by Josephine?
A)$9,925.22
B)$9,921.17
C)$10,043.49
D)$10,047.95
Answer: B
Q2) A wholesale electrical supply store is offering to its customers terms of 3/30,n/90.What is the highest simple interest rate that A-1 Electric can afford to borrow money in order to take advantage of the discount?
A)12.17%
B)12.54%
C)18.25%
D)18.81%
Answer: D
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3
Chapter 2: Compound Interest
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) The population of a given country was 24.3 million on January 1,2001 and on January 1,2011 it was 27.3 million people and the population growth rate over this time period was g% compounded annually.At this same rate of growth g,how many more years (from January 1,2011)will it take this country's population to reach 30 million people?
A)8.1 years
B)9.5 years
C)9.2 years
D)18.1 years
Answer: A
Q2) What simple interest rate r is equivalent to j<sub>4</sub> = 8% if money is invested for 4 years?
A)8.24%
B)8.33%
C)9.01%
D)9.32%
Answer: D
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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) The present value at j<sub>12</sub> of a $10,000 payment today,followed by 32 monthly payments of $5000 is $136,335.69.What is the present value of 33 monthly payments of $2000,first payment made today,if these payments earn the same interest rate,j<sub>12</sub>?
A)$48,534.28
B)$50,534.28
C)$52,534.28
D)Cannot be determined without knowing the value of j<sub>12</sub>
Answer: C
Q2) To buy some furniture,you can put $150 down and "don't pay a cent" for 6 months.At the end of 6 months,you begin making monthly payments of $100 for 2-years.If j<sub>12</sub> = 8.4%,what is the equivalent cash price of the furniture?
A)$2276.68
B)$2261.89
C)$2126.68
D)$2111.89
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) Gerry make quarterly deposits $2,000 at the end of every 3-month period in a fund earning interest compounded semi-annually at j<sub>2</sub> = 8%.If the fund pays simple interest for the fractional part of any interest period,what is the accumulated value of Gerry's deposits at the end of 5 years?
A)$48,024.44
B)$48,264.56
C)$48,499.96
D)$48,504.67
Q2) Deposits are made into an account at the end of every 2 months as follows: 600,575,550,525, If the fund earns interest at j<sub>6</sub> = 6%,what is the accumulated value of this account at the end of 2 years?
A)$6262.33
B)$5962.29
C)$5903.24
D)$5622.33
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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 is being repaid with level annual payments of $1040 on July 30<sup>th</sup> of each year.The last $1040 loan payment is to be made on July 30,2015 and the interest portion of this final payment is $40.What is the principal portion of the payment made on July 30,2010?
A)$821.93
B)$828.03
C)$854.80
D)$863.84
Q2) A corporation takes out a loan for $88,000 with interest due every six months for 7-years at j<sub>2</sub>.The principal will be paid in one lump sum at the end of 7-years.The corporation makes semi-annual deposits of $5,150.32 into a sinking fund.The semi-annual cost of the loan is $9,110.32.What would be the semi-annual payment if the corporation was to instead pay off the loan using the amortization method,given the interest rate on the loan remained the same at j<sub>2</sub>?
A)$7,790.32
B)$8,608.19
C)$8,990.61
D)$9,231.00
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Chapter 6: Bonds
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) Which of the following statements is true about an inverted yield curve?
A)Long term interest rates are less than short term interest rates and the market is expecting future interest rates to rise
B)Long term interest rates are less than short term interest rates and the market is expecting future interest rates to fall
C)Long term interest rates are greater than short term interest rates and the market is expecting future interest rates to rise
D)Long term interest rates are greater than short term interest rates and the market is expecting future interest rates to fall
Q2) A $10,000 bond matures on January 1,2020.It pays semi-annual coupons.It is purchased on February 1,2010 to yield j<sub>2</sub> = 11%.The full (or dirty)price of the bond on February 1,2010 is $9578.38.What would be the price of the bond on the coupon date,January 1,2010?
A)$9489.00
B)$9490.95
C)$9666.18
D)$9668.81
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Page 8
Chapter 7: Business Decisions, Capital Budgeting and Depreciation
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) A machine is purchased for $100,000 and has a salvage value of $12,000 in 25 years.What is the total depreciation for the first 3 years,assuming the constant percentage method? (Answer to the nearest dollar)
A)$22,464
B)$15,601
C)$12,328
D)$6,863
Q2) A town is putting a new roof on its arena.A standard roof cost $600,000 and has an expected lifetime of 20 years with no salvage value.Another company has stated that they can add a preservative to the roof which will increase the lifetime of the roof by 10 years.Ignoring maintenance costs,what is the maximum amount the town should be willing to pay for the preservative if money is worth j<sub>1</sub> = 7%? (Answer to the nearest dollar).
A)$59,171
B)$87,760
C)$102,795
D)$118,342
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Chapter 8: Contingent Payments
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42 Verified Questions
42 Flashcards
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Sample Questions
Q1) 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 opposite direction?
A)24%
B)32%
C)48%
D)50%
Q2) An individual age 50 is promised a payment of $8,000 if he is alive at age 55.If he dies within the next 5 years,his estate will get ½ of this amount,payable at the time that he would have turned 55.You are given the probability of a 50 year old surviving to age 55 is 0.9464.If the interest rate is i = 5%,how much will it cost this individual to buy this payment scheme?
A)$5932.23
B)$6100.22
C)$7571.20
D)$7785.60
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Page 10