CONFIDENTIAL 1 CS/JULY 2021/ASC453

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : FINANCIAL MATHEMATICS

COURSE CODE : ASC453
EXAMINATION : JULY 2021
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Start each answer on a new page.

3. Do not refer to any material unless permission is given by the invigilator.

4. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 4 printed pages
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QUESTION 1 [CLO1]

a) Give and briefly explain two examples of cashflow scenarios that involves you.
(6 Marks)

b) State the inflows and outflows for each given cashflow process in (a).
(4 Marks)

QUESTION 2 [CLO3]

a) At time 2𝑡 years, the accumulated value of RM300 paid immediately and RM500 paid at
the end of 𝑡 years is RM400. Write the expression of annual effective rate of interest, 𝑖
in terms of 𝑡.
(7 Marks)

b) Given a nominal rate of discount, 𝑑 per annum convertible every two month, find the
expression of the equivalent rate of nominal interest per annum convertible quarterly.
(3 Marks)

QUESTION 3 [CLO2]

a) Tia deposits RM500 in Affin Bank that accumulates at an interest rate of 8% per annum
compounded quarterly. She also deposits RM500 in Bank Rakyat that accumulates at
an interest rate of 6% per annum compounded semiannually. At the end of five years,
which bank gives a higher accumulation value? Justify your answer.
(6 Marks)

b) You are given the following information:

• Account 𝑀 is invested at an effective annual interest rate of 4%.
• Account 𝑁 is invested at an effective annual interest rate of 3%.
• The total accumulation values in both accounts at the end of 25 years is RM15,000.
• The accumulation value for Account 𝑀 is twice the amount in Account 𝑁 at the end
of 20 years.

i) Determine the amount of principal invested in account 𝑀 and 𝑁.

ii) Calculate the total accumulation values in both accounts at the end of 15 years.
iii) Account 𝐿 has the same amount of principal as account 𝑀 and accumulates at
a constant force of interest, 𝛿. At the end of 20 years, Account 𝐿 has the same
accumulation values as in Account 𝑀. Find 𝛿.
(14 Marks)

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QUESTION 4 [CLO2]

a) Fallon needs to buy a car in 10 years. The cost of the car is currently at RM50,000, but
is expected to inflate at 4% per year. To finance this purchase, she deposits RM4,000
into her Maybank account at the beginning of each year for six years. She also deposits
an additional amount of RM 𝑍 at the beginning of years 4,5, and 6 to achieve her goal.
The annual effective interest rate is 10%. Determine 𝑍.
(8 Marks)

b) Farah purchases three annuities and each annuity has an equal present value. She
purchases:

• 25 year annuity with payments of RM5 at the end of each year. The annual effective
interest rate is 𝑘%.
• Perpetuity immediate with payments of RM5 at the end of each year. The annual
effective interest rate is 8%.
• 𝑛 year annuity-immediate with payments of RM5 at the end of each year. The annual
effective interest rate is 𝑘 − 1.273%.

Calculate 𝑛.
(10 Marks)

c) Azman and Alia plan to save their money for future expenses. They plan to deposit their
money in different funds. Azman deposits RM200 at the end of each year for 20 years
into a fund that earns an annual effective interest rate of 7%.

As for Alia, she makes twenty deposits into a fund at the end of each year for 20 years.
The first five deposits are RM100 each, the second five deposits are RM150 and the last
10 deposits are RM 100 + 𝑋 each. The fund earns an annual effective interest rate of 8%
during the first five years, 5% annual effective interest on the second five years and 6%
annual effective interest thereafter.

At the end of 20 years, the amount in Azman’s fund equals the amount in Alia’s fund.
Calculate 𝑋.
(11 Marks)

d) At time 0, Daniel makes an initial deposit of RM1,500 into a fund, followed by five annual
deposits of RM 500 at time 1, 2, 3, 4, and 5. He will receive payments from the fund at
time 7, 8, and 9 starting at RM2,000 and decreasing linearly by RM 𝑌 per year. The
balance in the fund after the last payment is RM0. Assume this fund earns an effective
annual interest rate of 6%. Find 𝑌.
(11 Marks)

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QUESTION 5 [CLO2]

Hazim plans to buy a house but refuse to pay regular installments to the bank at the end of
each year. Instead, he customized his loan which requires him to make yearly payments of
RM200 in the first year, and the following subsequent payments will be an increment of 8%
over the previous payment. This agreement will be maintained up until the tenth payment.
After the tenth payment, the subsequent payments now will decrease by 5% over the previous
payment. This agreement uses an effective rate of interest of 8% per annum.

i) Calculate the present value of this contract if Hazim only made payment up until 20
payments.
ii) Construct the amortization schedule for the 7th to 14th payment.
iii) If Hazim wishes to have a level payment from the 15th payment onwards, but still
maintain the same present value found in (i), calculate the new level payment.
iv) Show the new amortization for the 15th payment onwards.
(20 Marks)

END OF QUESTION PAPERS

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