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Question $1$

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If m $($the number of compounding periods per year$)$ is greater than one, then

a$.$

None of the available options

b$.$

All of the available options

c$.$

Effective rate per annum $<$ Nominal rate per annum

d$.$

Effective rate per annum $=$ Nominal rate per annum

e$.$

Effective rate per annum $>$ Nominal rate per annum

Question $2$

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Calculate the effective rate of interest for the first year, if the rate of interest is $31\mathrm{.}1\%$ p$.$a$.$ compounded semiannually? $($rounding the answer to $6$ significant decimal figures$)$

a$.$

$0\mathrm{.}357282$

b$.$

$0\mathrm{.}358631$

c$.$

$0\mathrm{.}335180$

d$.$

$0\mathrm{.}349187$

e$.$

$0\mathrm{.}359393$

Question $3$

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The following table depicts a stream of cash$-$inflow from $5$ different prospective investment opportunities. You may assume that the interest rate is greater than zero. Which option is preferable?

Year $1$

Year $2$

Year $3$

Year $4$

Option $1$

$ $200$

$ $200$

$ $200$

$ $200$

Option $2$

$ $150$

$ $200$

$ $200$

$ $200$

Option $3$

$ $150$

$ $200$

$ $200$

$ $250$

Option $4$

$ $250$

$ $200$

$ $200$

$ $150$

Option $5$

$ $200$

$ $200$

$ $200$

$ $150$

a$.$

Option $3$

b$.$

Option $4$

c$.$

Option $2$

d$.$

Option $5$

e$.$

Option $1$

Question $4$

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You are analyzing the value of a lump sum. To help your calculation, you visually represent the situation by using the following timeline.

$ $5000$

$|---------|----------|----------|----------|----------|----------|$

Yr$0$ Yr$1$ Yr$2$ Yr$3$ Yr$4$ Yr$5$ Yr$6$ Timeline

$$

Focal Date

As shown above, you must calculate the

a$.$

present value of $ $5000$ by compounding interest for a period of $6$ years

b$.$

future value of $ $5000$ by compounding interest for a period of $6$ years

c$.$

None of the available options

d$.$

future value of $ $5000$ by discounting interest for a period of $6$ years

e$.$

present value of $ $5000$ by discounting interest for a period of $6$ years