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SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 209 - CORPORATE FINANCE AND FINACIAL MODELLING

MID TERM EXAMINATION

SEPTEMBER 2012

Time allowed: 3 HOURS plus 5minutes reading time

Instructions to Candidates:

1. Check that you have the correct examination in front of you. 2. There are SIX (6) questions in this paper. Answer FOUR (4) questions. 3. All questions must be answered on the answer sheet only.

4. Begin each question on a new page.

5. Discount tables have been provided

6. There shall be no any form of communication between students during the examination. Any students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.
QUESTION ONE

a) Assume the total cost of a university education will be $185632.5 when your child enters college in 18 years. You presently have $15000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s university education? ( 6 Marks)

FV = PV (FIVIF r,t)

$185632.5 = $15000(FIVIF r,18)

(FIVIF r, 18) = $185632.5/$15000

(FIVIF r, 18) = 12.3755

Therefore Check the value 12.3755 in the period of 18 years in the future value factor tables

r= 15%

b) A student requires K11, 000,000 to clear an outstanding balance before graduating in two (2) years time. How much should he invest now at 9% compounded quarterly for him to have the required amount to pay the school at the end of the two years? ( 4 Marks)

PV = FV (PVIF r,t)

PV = 11000000 (PVIF 9/4, 2(4))

PV = 11000000 (PVIF 9/4, 8)

PV = K9, 206,321.81

c) Prepare an amortization schedule for a K1000 loan to be paid in 3 equal

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