MATH 1140 - Section 001
Fall 2012
Quiz 02 Name:
September 13, 2012
Directions: Write legibly, the use of documents is forbidden, giving or receiving aid on this assignement is forbidden. You will get zero if any of these happen.
1. An investment requires a cash outlay of $5, 000 and is expected to bring returns of $2, 500 in 9 months and $3, 200 in 18 months. • What is the net present value at 15% ? • Is the internal rate of return greater or less than 15% ? 5 points
Answer 2,500 3,200 For any i, the net present value is defined by: N P Vi% = −5, 000 + 1+i 9 + 18 In particular, 1+i 12 12 N P V15% = −140.66. Since the net present value is negative, the IRR must be less than 15%.
2. Lili Rose purchased a used car on September 06, for $8, 500 and paid $1, 500 down. Thedealer agreed to a 7% interest rate and two partial payments of $2, 000 on November 21 and February 10, with stipulation that the balance be due on April 20. Use the U.S. rule to find Lili Rose’s final payment. 5 points
76 Answer On November 21, Lili Rose still owes: 7, 000(1 + 0.07 ∗ 360 ) − 2, 000 = 5, 103.4. 81 On February 10, she owes 5, 103.4(1 + 0.07 ∗ 360 ) − 2, 000 = 3, 183.823. 69 The final balance due on April 20 is: 3, 183.823(1 + 0.07 ∗ 360 ) = 3, 226.54.
