Financial Mathematics
Exam Practice Tests
Course Introduction
Financial Mathematics is a course that explores the mathematical methods and models used to analyze and solve problems in finance. It covers topics such as interest rates, annuities, loans, bonds, and investment evaluation, as well as the pricing of financial derivatives like options and futures. The course also emphasizes the application of probability theory and statistics in assessing financial risk and modeling asset price behavior. Through theoretical concepts and practical problem-solving, students gain the quantitative skills required for careers in financial analysis, risk management, and actuarial science.
Recommended Textbook
Contemporary Business Mathematics with Canadian Applications 9th Edition by S. A. Hummelbrunner
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16 Chapters
1484 Verified Questions
1484 Flashcards
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Page 2
Chapter 1: Review of Arithmetic
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Calculate the final answer for the following expression: (103 + 202) ÷ 20
A) 50.00
B) 20.00
C) 70.00
D) 3.5
E) 5000
Answer: C
Q2) Esther's flower shop had sales revenue of $152 000.00 for the year. If the shop's GST taxable expenses were 29 920.00. Calculate how much Colleen should remit to the government at the end of the year.
Answer: GST collected = (0.05)152 000 = $7 600
GST paid = (0.05)29 920 = $1 496
GST remittance = 7600 - 1496 = $6104
Q3) Change 0.25% into a decimal.
Answer: 0.25/100=0.0025
Q4) C.O. is paid a semi-monthly salary of $1 250.00. If his regular work week is 35 hours, what is his hourly rate of pay?
Answer: Annual salary = 1250.00 × 24 = 30000.00
Weekly pay = 11ea8930_3279_7f47_b375_cd0707763360_TB4213_11 = 576.92
Hourly rate = 11ea8930_3279_7f48_b375_f59a4043d7d3_TB4213_11 = $16.48
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Chapter 2: Review of Basic Algebra
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193 Verified Questions
193 Flashcards
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Sample Questions
Q1) Evaluate: (-5)<sup>-3</sup>
Answer: - 11ea8930_328f_509d_b375_25ffa7f29bb0_TB4213_11 or -.008
Q2) Solve: I = Prt for r
Answer: I = Prt, r = 11ea8930_32a2_63e2_b375_4bb82c4e897f_TB4213_11
Q3) Evaluate: 4x2 - 10xy - 8y2 for x = -3, y = 5
Answer: 4x2 - 10xy - 8y2 = 4(-3)2 - 10(-3)(5) - 8(5)2 = 4(9) + 150 - 8(25) = 36 + 150 - 200 = -14
Q4) Simplify: -(4 - 6a) - (-8 + 6a)
Answer: -4 + 6a + 8 - 6a = 4
Q5) Express in exponential form: ln e5 = 5
Answer: e5 = e5
Q6) Solve: 4(2x - 5) + 3 = 3(x - 4)
Answer: 4(2x - 5) + 3 = 3(x - 4)
8x - 20 + 3 = 3x - 12
8x - 3x = -12 + 20 - 3
5x = 5 x = 1
4
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Chapter 3: Ratio, Proportion, and Percent
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) A firm's bad debts of $7775 were 2 3/4% of sales. What were the firm's sales?
Answer: Bad debts = 2 11ea8930_32c2_4810_b375_35507768b02f_TB4213_11 % of sales 7775 = 0.0275S
S = $282,727.27
Sales are $282,727.27.
Q2) 165% of what amount is $370?
Answer: 165% of x = 370 1.65x = 370 x = 224.24
Q3) From March 1991 to March 2001, the price of gasoline increased 170%. If the price in 1991 was 33.0 cents per liter, what was the price per liter in 2001?
Answer: Let the 2001 price be $x.
x = 0.33 + 170% of 0.33 = 0.33 + .561 = .891
The 2001 price was ¢89.1 cents per liter.
Q4) Solve: 1.15:0.95 = k:1.19
Answer: 1.15:0.95 = k:1.19
0.95k = 1.15 1.19
k = 11ea8930_32b9_e361_b375_29e04bffd9fd_TB4213_11 k = 1.44
Page 5
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Chapter 4: Linear Systems
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Sample Questions
Q1) A machine requires five hours to make a unit of Product A and four hours to make a unit of Product B. Last month the machine operated for 440 hours producing a total of 100 units. How many units of each type of product did it produce?
Q2) Find the y-intercept for the following equation: 8x = 2 + y
A) 8
B) -8
C) 2
D) -2
E) 4
Q3) Find the y-intercept for the following: 3x - 5y = 60
A) 12
B) -12
C) 60
D) -60
E) -5
Q4) Solve the system of equations: 2x + 8y = -18
2x - 4y = 10
Q5) Graph: y = 3 - 2x
Q6) Solve graphically: x - y = 4 and x + y = 6
Q7) Graph: x + 4y = 8
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Chapter 5: Trade Discount, Cash Discount, Markup, and Markdown
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) The net price of an article is $125.46. What is the list price if a discount of 38% was allowed?
A) $200.90
B) $204.13
C) $202.35
D) $90.91
E) $738.00
Q2) Burke Company received an invoice dated November 18 for a shipment of goods received November 21. The invoice was for $9 255.00 less 40%, 13.375% with terms 5/10, 3/20, n/45. How much must Burke pay on December 2 to reduce its debt
a) by $2000.00?
b) to $2000.00?
c) if Burke Company makes a partial payment of $4000 on November 25, how much should be credited to the account
Q3) A television set was sold during a clearance sale for $299.00. If the television was sold at a discount of 70%, what was the list price?
Q4) What rate of discount has been allowed if an item that lists for $720.00 is sold for $681.57?
Page 7
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Chapter 6: Break-Even and Cost-Volume-Profit Analysis
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Sample Questions
Q1) A company has variable costs that are 4/7 the value of their sales revenues. Total net income for the most recent period was a profit of $53 770 and sales were $420 000. The company has started a new marketing campaign that they hope will increase sales, but it will require additional advertising of $6 400. How many sales dollars does the company have to generate in order to remain at the same level of profitability as before the new ad campaign?
A) $434 933.33
B) $326 357.50
C) $420 210.00
D) $140 396.67
E) $105 297.50
Q2) Priest and Sons, a local manufacturer of a product that sells for $13.50 per unit. Variable cost per unit is $7.85 and fixed cost per period is $1 220. Capacity per period is 1100 units.
Perform a break-even analysis showing a) an algebraic statement of (i) the revenue function; (ii) the cost function; (iii) calculate the break-even point in units.
b) a detailed break-even chart.
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Chapter 7: Simple Interest
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Sample Questions
Q1) A bank pays an interest of 4.5% for a three month term deposit. Calculate the amount that Stacy must invest to earn an interest of $100.00.
Q2) How many days did it take for your investment of $4300 to accrue $147 in interest at a rate of 8.12%?
A) 163.36 days
B) 135.36 days
C) 157.36 days
D) 153.67 days
E) 163.67 days
Q3) You currently owe $1400 today and $2 317 in 195 days at a rate of interest of 7%. What is the single equivalent payment 150 days from today?
A) $2297.18
B) $2297.81
C) $2279.18
D) $2279.81
E) $3737.45
Q4) At what rate of interest must a principal of $1 535.00 be invested to earn interest of $75.46 in 235 days?
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Chapter 8: Simple Interest Applications
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Sample Questions
Q1) Government of Manitoba 364-day T-bills with a face value of $2 000 000 were purchased on April 17 for $1 945 970. The T-bills were sold on May 25 for $1946 340.
a) What was the market yield rate on April 17?
b) What was the yield rate on May 25?
c) What was the rate of return realized?
Q2) Calculate the legal due date of a $600.00, 120 day note with interest at 5% dated March 2, 2014.
A) July 5
B) July 2
C) June 30
D) July 3
E) July 31
Q3) Find the present value of a non-interest-bearing seven-month promissory note for $1 800 dated August 27, 2012, on December 4, 2012, if money is then worth 8.375%.
Q4) A 7-month note dated May 1, 2014 is made at 3.75% for $3 705. What is the present value of the note on September 4, 2014, if money is worth 6.87%?
Q5) Find the maturity value of a $473 note issued on October 4 at 8.5% for 190 days. To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Compound Interest - Future Value and Present Value
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) A $5000.00, six-year note bearing interest at 8.24% compounded quarterly, discounted three and a half years after the date of issue at 6.6% compounded monthly. Find the proceeds.
Q2) A ten-year promissory note discounted after seven years at 10% compounded quarterly has a maturity value of $40000. Find the proceeds.
Q3) Determine the accumulated value of $4100.00 compounded semi-annually at 8% p.a. for seven years.
Q4) How much will a registered retirement savings deposit of $10000.00 be worth in 15 years at 6.00% compounded quarterly? How much of the amount is interest?
Q5) Calculate the cash value of a bond that will mature with a value of $16500 in 7 years and 5 months. The bond is discounted at 5.8% compounded semi-annually.
A) $10797.48
B) $10979.48
C) $10997.48
D) $10779.48
E) $11117.48
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Chapter 10: Compound Interest - Further Topics
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Sample Questions
Q1) The accountant of Crystal Credit Union proposes changing the method of compounding interest on premium savings accounts to yearly compounding. If the current rate is 8% compounded quarterly, what nominal rate should the treasurer suggest to the Board of Directors to maintain the same effective rate of interest?
Q2) In how many days will $770.00 grow to $880.00 at 11.5% p.a. compounded monthly?
Q3) Find the equated date at which two payments of $1600.00 due six months ago and $1850.00 due today could be settled by a payment of $4300.00 if interest is 9.48% compounded monthly.
Q4) A principal of $4250.00 compounded monthly amounts to $4800.00 in 6.25 years. What is the nominal annual rate of interest?
Q5) Deon has $4000.00 invested at 4.5% compounded semi-annually at her bank. In order to make a comparison with another financial institution she needs to know the effective rate of interest at her bank. What is the effective annual rate of interest?
A) 1.12%
B) 2.28%
C) 9.10%
D) 4.55%
E) 4.5%
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Chapter 11: Ordinary Simple Annuities
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76 Verified Questions
76 Flashcards
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Sample Questions
Q1) Find the amount to which monthly deposits of $100.00 will grow in five years at 4.8% p.a. compounded monthly.
Q2) How many quarterly payments will it take for $400.00 deposited at the end of each quarter to amount to $11453.40 at 6% compounded quarterly?
Q3) Calculate the present value of 120 payments of $50.00 made at the end of each of 120 consecutive months respectively if money is worth 12% compounded monthly.
A) $3485.03
B) $3485.02
C) $6000.00
D) $3000.00
E) $34 850.30
Q4) A loan of $19 850.00 is to be repaid in quarterly payments of $620.00. How many payments are required to repay the loan at 6.5% compounded quarterly?
Q5) Planning for their child's college education, Sean and Jessica opened an account paying 8.00% compounded yearly. If ordinary annuity payments of $15 000.00 per year are to be paid out of the account for three years starting sixteen years from now, how much did the couple deposit?
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Page 13
Chapter 12: Ordinary General Annuities
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Sample Questions
Q1) Kelsey bought a car priced at $19700.00 for 10% down and equal monthly payments for 4.5 years. If interest is 8.22% compounded semi-annually, what is the size of the monthly payment?
Q2) For how long will Jessica have to make payments of $1200.00 at the end of every three months to repay a loan of $10 000.00 if interest is 12% compounded semi-annually?
Q3) How much must be contributed into an RRSP at the end of each year for 37 years to accumulate to $213 000.00 if interest is 8.04% compounded quarterly?
Q4) Conchita Martinez saves $17.25 at the end of each month and deposits the money in an account, paying 4.96% compounded quarterly.
a) How much will she accumulate in 22 years?
b) How much of the accumulated amount is interest?
Q5) If a loan was repaid by monthly payments of $9 230.00 in 7.5 years at 6.15% compounded annually, how much interest was paid?
Q6) Note: The calculations for this question were done using Excel's RATE function. A property worth $15 000.00 is purchased for 10% down and semi-annual payments of $1750.00 for twelve years. What is the effective rate of interest if interest is compounded semi-annually?
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Page 14
Chapter 13: Annuities Due, Deferred Annuities, and Perpetuities
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Sample Questions
Q1) The amount of $75 400.00 is invested at 9.65% compounded quarterly for 3 years. After 3 years the balance in the fund is converted into an annuity. If interest on the annuity is 6.75% compounded semi-annually and payments are made at the end of every six months for 8 years, what is the size of the payments?
Q2) What sum of money must be deposited in a trust fund to provide a scholarship of $630.00 payable at the end of each month if interest is 7.8% compounded monthly?
Q3) A lease requires semi-annual payments of $6100.00 for 7.5 years. If the first payment is due in 3 years and interest is 9.72% compounded monthly, what is the cash value of the lease?
Q4) A contract valued at $81 500.00 requires payment of $3350.00 at the beginning of every six months. If interest is 6.5% compounded semi-annually, what is the term of the contract?
Q5) Robert Bernard deposited $1000.00 in a trust account on the day of his son's birth and every three months thereafter. If interest paid is 8% compounded quarterly, what will the balance in the trust account be before the deposit is made on the son's twenty-first birthday?
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Chapter 14: Amortization of Loans, Including Residential Mortgages
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Sample
Questions
Q1) A loan of $19 000.00 is repaid by quarterly payments of $900.00 each at 8% compounded quarterly. What is the principal repaid by the 21st payment?
Q2) What is the outstanding balance after 23 payments on a 20-year mortgage that has monthly payments of $1062.32 and an interest rate of 6.6% compounded monthly?
A) $143402.54
B) $144302.54
C) $134402.54
D) $134302.54
E) $134322.54
Q3) A contractor's price for a new building was $85 100.00. Stampede Inc., the buyers of the building, paid $14 000.00 down and financed the balance by making equal payments at the end of every six months for 14 years. Interest is 12% compounded semi-annually.
a) What is the size of the semi-annual payment?
b) How much will Stampede Inc. owe after 6 years?
c) What is the total cost of the building for Stampede Inc.?
d) What is the total interest included in the payments?
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Page 16
Chapter 15: Bond Valuation and Sinking Funds
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Sample Questions
Q1) The Town of Snow Lake issued debentures worth $420 000.00 maturing in 15 years to finance construction of recreational facilities. To redeem the debentures, the town council decided to make equal deposits into a sinking fund at the beginning of every three months. Interest earned by the sinking fund is 6.66% compounded quarterly.
a) What is the size of the quarterly payment into the sinking fund?
b) What is the balance in the fund after six years?
c) How much interest is earned by the fund in the 25th payment interval?
d) By how much will the fund increase in the 43rd payment interval?
e) Prepare a partial sinking fund schedule showing details of the first three payments, the last three payments, and totals.
Q2) A $10000 bond bearing interest at 6% payable semi-annually redeemable at par on March 1, 2002, was purchased on September 30, 1996, to yield 5% compounded semi-annually. Determine the purchase price.
Q3) A $1000, 6% bond redeemable at par with semi-annual coupons was purchased 10 years before maturity to yield 5% compounded semi-annually. The bond was sold 3 years later at 102. Calculate the gain or loss on the sale of the bond.
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Chapter 16: Investment Decision Applications
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Sample Questions
Q1) What is the IRR for the following net annual cash flows today -$45000, Year 1 +$12000, Year 2 +$37000, Year 3 +$12000, Year 4 +$17000?
A) 26.722%
B) 16.722%
C) 6.722%
D) 36.722%
E) 46.722%
Q2) A company buys equipment for $15000 today and has annual net cash inflows of $6000 for 3 years. The discount rate is 12% compounded annually. What is the Net Present Value (NPV)?
A) -$525.90
B) $552.90
C) $992.50
D) $652.90
E) -$652.90
Q3) Donna and Keith want to sell their business. They have received two offers. If they accept Offer A they will receive $61 000 immediately and $20 000 in three years. If the accept Offer B they will receive $37000 now and $3000 at the end of every six months for 5 years. If interest is 6.67%, which offer is preferable?
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Page 18