Q. 25 Ans A
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Q. 25 Ans A
Q25 Ans A.
This problem is Related to Time Value of Money. Whenever we solve these kinds of problems we have to ensure that we have a common point at which we can compare the present and future values.
Here, the common point will be the point at which the man retires. First find the PV at the age 50 of the payments that are received during retirement.
PMT = $5000,
I/Y = 5/12,
N = 360,
FV = 0 => CPT->PV = $931,408.09
Next, taking this PV (at the age of 50) as FV (for the investment period) find out the PMT
FV = $931,408.09,
PV = 0,
I/Y = 10/12,
N = 240 => CPT -> PMT = $1,227
You get B if you use 10% rate during retirement and you get C if you use 5% during working time
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Today's Question (Questions and answers provided by Knowledge Varsity)
Q26. An analyst gathers the following information about a common stock investment:
Action ----------------- ------ --- Date----------- Total Amount ($)
Purchase of 1 share-----------------1st Jan 2007--------- 100
Purchase of 1 share-----------------1st Jan 2008--------- 110
Sale of 2 shares @ 115 per share---- 31st Dec 2008-------- 230
The stock does not pay a dividend. The money-weighted rate of return on the investment is closest to:
A. 9.687%
B. 6.32%
C. 7.23%
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Q16 Ans B:
You should calculate using geometric return.
(1+Total return) = (1+r1)*(1+r2) *(1+r3) *(1+r4) *(1+r5) *(1+r6)
Total return = 1.0393
@ssoffline
Thanks for pointing that out.
We have revised the question.
Q26 Ans B:
Money weighted return is same as IRR. The cash flows are -100, -110 and +230, plug in the calculator to find out the IRR.
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Today's Question (Questions and answers provided by Knowledge Varsity)
Q 27 Over a year, a mutual fund has quarterly returns of 4%, 2.5%, 2%, and 0.5%. Investor A purchases more of the mutual fund every quarter. Investor B sells some of the mutual fund every quarter. Which measure of return is most likely to be higher?
Measure of return --------------------- Investor A --------------------- Investor B
A ------------------------------------------- Money-Weighted -------------- Money-Weighted
B ------------------------------------------- Money-Weighted --------------Time-Weighted
C ------------------------------------------- Time-Weighted -------------- Money-Weighted
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Answer Q 27 is C
Q 27 Ans B :
Since the returns are decreasing an investor who is withdrawing money will have money weighted return more than time weighted return. An investor who is depositing money will have time weighted return more than the money weighted return.
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Today's Question (Questions and answers provided by Knowledge Varsity)
Q28. An investment will produce cash flows of $10,000 ; $20,000 and $30,000 at the end of the next three years, if the required rate is 10%, what is the present value of these cash flows?
A. $39,068
B. $25,620
C. $48,159
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Ans 28.
PV = 10000/1.1 + 20000/1.21+ 20000/1.331= 48159
If 2nd month the interest will be paid on the reduced principal => 10,00,000
Q28 Ans C:
You can solve this through cash flow function or can individually find the present value.
PV = 10,000/1.1 + 20,000/(1.1*1.1) + 20,000/(1.1*1.1*1.1)= 48,159
Using CF;
CF0=0;
C01=10K;
C01=20K;
C01=30K;
I=10%=> Find NPV
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Today's Question (Questions and answers provided by Knowledge Varsity)
Q 29 You anticipate that repairs and taxes for your house over the next 4 years will be: $1,000; $1,200; $1,400 and $1,500 (all paid at the end of the year). You wish to set aside money today in a savings account for these expenses. The savings account pays an interest rate of 4%. There are no taxes on the interest paid by the savings account. How much must you set aside today?
A. 4,597.81
B. 4903.85
C. 5100
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