Property Investment Exam paper

Topics: Nominal interest rate, Central bank, Monetary policy Pages: 8 (770 words) Published: September 21, 2013
Page 1 of 4

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FINAL EXAMINATION
SPRING SESSION 2010
SCHOOL OF ECONOMICS & FINANCE
Student Family Name:
Student Given Names:
Student Number:
Course:

Unit Name (In Full):

Property Investment

Unit Number:

200749

Time Allowed:

3 (Three) hourIs including 10 minutes reading time

Number of Questions:

7 (Seven)

Total Number of Pages: 4 (Four)
Lecturer's Name:

Norman Harker
INSTRUCTIONS

PLEASE READ CAREFULLY BEFORE PROCEEDING

1. Write your name and student number on the top of this examination paper and on ALL answer booklets. 2. All examinations include reading time, which allows you to spend some time at the start of the examination composing yourself, reading the examination paper, and planning which questions to answer, and how. We advise you to read the instructions and questions carefully, before you begin writing. However, you are allowed to begin writing straight away if you wish.

3. This is

a CLOSED book examination.

4. Answer in the Answer Booklet provided
5. All questions carry 20 marks.
6. Sharp EL 738, EL 735S, EL735 or any other non-programmable calculator.

7. Answer Questions 1 and 4 other questions only.

DO NOT TAKE THIS PAPER FROM THE EXAMINATION ROOM

Property Investment 200749 FINAL EXAMINATION

EXAM CS -SPRING 2010

Page 2 of 4

Question 1 (Compulsory Question) (20 Marks)
a) A bank wants to secure an annual effective rate of 7.8% but quotes annual nominal compounded monthly. What should it quote? (2 Marks)
b) A bank uses nominal rates compounded monthly of 2.8% on some accounts but quotes a nominal rate compounded daily on others. To get the same equivalent rate, what should the second rate be? (2 Marks).

c) A property yields a weekly rental and I have set up a weekly cash flow over the 10 year term. An IRR of that cash flow produces the result of 0.1291 %. What is the annual effective return? (2 Marks).

d) ABC Bank quotes a mortgage rate of 6.72% p.a. nominal compounded monthly. A mortgage broker quotes various rates using the annual effective rate as the comparison tool. What rate should it in~ert for ABC Bank? (2 Marks).

e) A bank quotes a nominal rate compounded monthly of 7.3% but allows repayments weekly at the equivalent effective interest rate per week. If I borrow $600,000 over 10 years what will be the weekly repayments? (4 Marks).

f) The outstanding balance on my mortgage is $445,000. My repayments are $3,250.00 per month. If the bank charges 5.3% p.a. nominal compounded monthly, how long will it take for me to payoff the mortgage? (4 Marks).

g) A bank quotes a mortgage rate of 7.26% nominal compounded monthly and you are interested in borrowing $650,000 over 15 years with monthly payments, In addition to interest it charges an up front loan arrangement fee of 2.75% of the loan plus it charges an account service fee of $50 per month. What is the annual effective cost of the loan? (4 Marks).

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Property Investment 200749 FINAL EXAMINATION

EXAM CS-SPRING 2010

Page 3 of 4

Answer 4 only of Questions 2 - 7
Question 2 (20 Marks)
Consider the following monthly cash flow:
Period

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

+Flow
-Flow
$0.00
$0.00
$14,000.00 -$5,000.00
$14,000.00
$0.00
$14,000.00
$0.00
$14,000.00
$0.00
$14,000.00
$0.00
$14,000.00
$0.00
$18,000.00
$0.00
$18,000.00
$0.00
$18,000.00
$0.00
$18,000.00
$0.00
$18,000.00
$0.00
$18,000.00
$0.00
$22,000.00
$0.00
$22,000.00
$0.00
$22,000.00 -$30,000.00

+/- Flow
$0.00
$9,000.00
$14,000.00
$14,000.00
$14,000.00
$14,000.00
$14,000.00
$18,000.00
$18,000.00
$18,000.00
$18,000.00
$18,000.00
$18,000.00
$22,000.00
$22,000.00
-$8,000.00

a) Using an annual effective discount rate of 12.75%, what is the NPV? (10 Marks). b) If I pay the calculated NPV for this cash flow, what will be the IRR? (5 Marks) c) If I...
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