Addis Ababa University

College of Business and Economics

Department of Accounting and Finance
Business Mathematics Final Examination for 2nd Year AcFn Students

Name: __________________________________I D No. ___________Section____________

June 09, 2021
Time Allowed: 2.5hrs
Instructor: Meyad D. Abdi
Maximum Mark: 50
General Instructions!

 Switch-off your mobile phone!

 Using a mobile phone for any purpose (i.e., including as a calculator) is strictly
forbidden. If found, you will automatically be disqualified from the exam.
 Fill the necessary data in the space provided above before you start.
 Attempt all questions.
 Give all the answers on the space provided for each part (for part I and II on this
cover page) and the work out part on the space provided.
 Make sure that the question paper has 10 printed pages (including the cover page)
before you start working.
 Round figures to 2 decimal places, whenever needed.
 Read the instruction for each part and question carefully.
 Do not turn this page until you are told to do so!

Answer Sheet for Part I (Use Capital Letter Only)

1 4 7 10
2 5 8 11
3 6 9 12

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Part I: Multiple Choice Questions (12 pts)
Instructions: This part contains 12 multiple choice questions. You are required to select the
best answer from the alternatives given and provide the answer on the answer sheet provided.
1. Suppose you put Br100 into a savings account today, the account pays a nominal annual
interest rate of 6 percent, but compounded semiannually, and you withdraw Br100 after 6
months. What would your ending balance be 20 years after the initial Br100 deposit was
made?
A) Br226.20 D) Br9.50
B) Br115.35 E) Br3.00
C) Br62.91
2. What is the future value of Br10,000 invested at 9.8%, compounded quarterly, for 17
years,
A) Br45,657.70 D) Br53,435.45
B) Br54,217.70 E) None of the above
C) Br51,857.70
3. The intersection point of entering column and leaving row is known as;
A) Slacks C) Optimal point
B) Pivot element D) Key element
4. What amount must be invested now in order to have Br12,000 after 3 years if money is
worth 6% compounded semiannually?
A) Br10,049.81 D) Br11,123.77
B) Br11,149.81 E) None of the above
C) Br13,241.81
5. Which of the following is most likely to increase as the frequency of compounding
increases?
A) Interest rate. C) Future value.
B) Present value. D) Discount rate
6. If Br2,000 is borrowed for 9 months at a simple interest rate of 10% per year, what is the
future value of the loan at the end of the six month?
A) Br2,150 C) Br120
B) Br2,120 D) Br150

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7. What is the compounding of interest?
A) The initial deposit
B) Money in a saving account
C) Interest found in a saving account
D) Interest on interest added to an initial deposit
8. If Br3,000 is invested for 4 years at 9% compounded annually, how much interest is
earned?
A) Br1,234.74 D) Br4,234.74
B) Br2,234.74 E) None of the above
C) Br1,734.74
9. You are considering borrowing Br100,000 for 30 years at a compound annual interest
rate of 9 percent. The loan agreement calls for 30 equal annual payments, to be paid at
the end of each of the next 30 years. (Payments include both principal and interest.) What
is the annual payment that will fully amortize the loan?
A) Br292,009.05 C) Br9,733
B) Br6,400 D) Br8,841
10. If Br4,000 is invested for 2 years at a simple interest rate of 0.5%, how much interest will
be received at the end of the 2-year period?
A) Br40 D) Br400
B) Br4,000 E) None of the above
C) Br700
11. Mr Kebede purchases an automobile using a loan. The amount borrowed is Br44,000 and
the terms of the loan call for the loan to be repaid over seven years using equal monthly
payments with an annual nominal interest rate of 12% and monthly compounding. The
monthly payment is closest to:
A) Br776.72 C) Br923.13
B) Br803.43 D) Br692.51
12. The present value of Br10,000 to be received five years from today, assuming a interest
rate of 9% compounded monthly, is closest to,:
A) Br6,499 C) Br6,897
B) Br6,387 D) Br6,982

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Part II: Work Out Questions
1. To help their son buy a car on his 20th birthday, a boy’s parents invest Br300,000 on his
10th birthday. If the investment pays 8% compounded quarterly,
a) How much is available on his 20th birthday? (1pt.)

b) Compute compound interest earned on the investment (1pt.)

c) Compute interest on interest earned on the investment (1pt.)

2. What is the amount of the payment that must be put in an account at the end of each
quarter to establish an ordinary annuity that has a future value of Br950,000 in 14 years,
if the investment pays 6%, compounded quarterly? Compute compound interest earned
on account (3pts.)

3. Suppose that Br400 is deposited at the end of every quarter for 16 years in an account
that pays 8%, compounded quarterly.
a) What is the total number of payments? (0.5pt.)

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 b) What is the interest rate per period? (0.5pt.)

c) Find the future value of the annuity (1pt.)

d) Find total interest on deposit (1pt.)

4. A couple borrowed Br1,200,000 to buy a condominium. Their loan was for 25 years and
money is worth 15%, compounded monthly.
a) Find their monthly payment size (1pt.)

b) Find the total amount they would pay over 25 years (1pt.)

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 c) Find the total interest they would pay over 25 years (1pt.)

d) Find the unpaid balance after 10 years (1pt.)

5. A woman buys an apartment house for Br3,250,000 by making 20% down payment and
amortizing the rest of the debt with monthly payments over the next 30 years. The
interest rate on the debt is 12%, compounded monthly. Compute
a) Down Payment and mortgage (1pt.)

b) Find the periodic payment (1pt.)

c) Find the interest charged (1pt.)

6. Suppose Becky has a choice of receiving Br10,000 at the end of each month for life or a
single prize of Br1.5 million. She is 35 years old and her life expectancy is 40 more
years.

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 a) Find the present value of the annuity if money is worth 6%, compounded monthly (3
pts.)

b) If she takes the Br1.5 million, spends Br700,000 of it, and invests the remainder at
6% compounded monthly, what monthly annuity will she receive for the next 40
years? (3pts.)

7. A division of the ministry of public health has conducted a simple survey on the public
attitude towards smoking. From the results of the survey the department concluded that
currently 50% of the population smokes cigarette & every month 20% of non-smokers
become smokers where as 30% of smokers discontinue smoking.
a) Compute the proportion of the non-smokers and smokers after three months (2 pts.)

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b) Compute the proportion of the non-smokers and smokers in the long run and write
the interpretation of it (4pts.)

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8. At one of its factories, a jeans manufacturer makes two styles: #891 and #917. Each
pair of style-891 takes 10 minutes to cut out and 10 minutes to assemble and finish.
Each pair of style-917 takes 10 minutes to cut out and 30 minutes to assemble and
finish. The plant has enough workers to provide at most 700 minutes per day for
cutting and at most 1,200 minutes per day for assembly and finishing. The profit
on each pair of style-891 is Br40 and the profit on each pair of style-917 is Br60.
Determine the pairs of each style that should be produced per day to obtain maximum
profit and the maximum profit by using
a) Graphic Approach (5pts.)

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b) Simplex method (5pts.)

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