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The document outlines an examination for the Bachelor of Business Science in Actuarial Science, Financial Economics, and Financial Engineering at Strathmore Institute of Mathematical Sciences. It includes instructions for the exam and a series of financial mathematics questions covering topics such as future value of annuities, interest rates, loan repayments, and definitions of financial terms. The exam is scheduled for October 2, 2023, and consists of various calculations and theoretical concepts in financial mathematics.

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14 views2 pages

1 FM2 Cat 1 021023 Affe

The document outlines an examination for the Bachelor of Business Science in Actuarial Science, Financial Economics, and Financial Engineering at Strathmore Institute of Mathematical Sciences. It includes instructions for the exam and a series of financial mathematics questions covering topics such as future value of annuities, interest rates, loan repayments, and definitions of financial terms. The exam is scheduled for October 2, 2023, and consists of various calculations and theoretical concepts in financial mathematics.

Uploaded by

mainakelvin746
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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STRATHMORE INSTITUTE OF MATHEMATICAL SCIENCES (SIMS)

BACHELOR OF BUSINESS SCIENCE (BBS) ACTUARIAL SCIENCE, FINANCIAL


ECONOMICS AND FINANCIAL ENGINEERING
CAT ONE
BSA 2204: FINANCIAL MATHS II
Date: Mon, 2nd October 2023 Time: 1 hr 15 min

Instructions
a. Please attempt all the questions.
b. Mark allocations are shown in brackets.
c. Use of a non-programmable electronic Calculator and actuarial table is allowed for
this examination.
d. Do not write/draw anything on this question paper.

1. (a) Derive the formula used to get the future value of an ordinary annuity (s n ).
[4 marks]
(b) A company has borrowed Ksh 500,000 from a bank. The loan is to be repaid
by level installments which are calculated using an effective interest rate of 9%
per annum. Calculate the amount of each installment given that the payments
are made annually in arrears for 10 years. [2 marks]
2. (a) A bank offers an annual effective rate of interest on one of its accounts of 4.2%.
Inflation is -2% per annum effective. Calculate the real rate of interest. [2
marks]
(b) Under its current rent agreement, a company is obliged to make annual pay-
ments of £7,500 for the building it occupies. Payments are due on 1 January
2006, 1 January 2007 and 1 January 2008. If the company wishes to cover
these payments by investing a single sum in its bank account that pays 7.5%
per annum compound, what sum must be invested on 1 January 2005? [3
marks]
3. A loan of £16,000 is repayable by ten equal annual payments. The annual effective
rate of interest is 4%. Calculate:
i. the interest element of the 4th payment. [3 marks]

1
ii. the capital element of the 7th payment. [3 marks]
iii. the capital repaid in the last five years of the loan. [2 marks]
iv. the total interest paid over the whole loan. [1 mark]
4. (a) Define the following terms as used in financial mathematics:
i. Time weighted rate of return. [1 mark]
ii. Money weighted rate of return. [1 mark]
iii. Linked IRR. [1 mark]
(b) The value of a fund’s assets was ¥10m on 1 December 2005 and ¥11m on 31
December 2006. The cashflows during this period were:
• ¥10,000 received on 1 March
• ¥50,000 paid out on 1 June
• ¥50,000 paid out on 1 June
• ¥75,000 received on 31 October
Calculate the money-weighted rate of return. [4 marks]
5. (a) Derive the mathematical formula used to test for capital gains in a fixed income
security that pays coupons C m-times a year and is redeemed at a value R after
n years. [3 marks]
(b) An investor liable to income tax at 25% and capital gains tax at 20% pur-
chases Tsh 10,000 nominal of a newly issued 5-year fixed-interest bond that is
redeemable at par and pays coupons of 8% per annum half-yearly in arrears.
Calculate the price the investor should pay to obtain a net yield of 5% pa
effective. [5 marks]

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