ADMS 3541 Fall Exam coversheet, case study, formula sheet

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York University *

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1010

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Finance

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Jan 9, 2024

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6

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ADMS 3541 Final Exam Giulio Iacobelli and Daniel Richards © 2023. All rights reserved. Page 1 of 17 York University ADMS 3541 B and C F2023 Final Exam (40%) December 10, 2023 Time: 7:00 p.m. – 10:00 p.m. Toronto Time 1. The Final exam is 3 hours (180 minutes) in length. It consists of two parts; part 1 multiple choice questions and part 2 case study, based on the material from week 1 to week 12. 2. This is a closed-book exam. Calculators are permitted on the entire exam. Phones are not permitted on the exam. 3. Answer all of the questions on the exam papers. 80 marks in total. 4. Do not detach the exam pages. All pages must be returned and submitted with your response. 5. Write clearly in ink only. If we cannot understand your response, or read your writing, you will receive a zero grade on that question. Pencils are not permitted. You must clearly label, present, and identify all relevant work to gain any partial credit. 6. Show your work. Show your work. Show your work! 7. The York University Senate Policy on Academic Honesty and the Student Code of Conduct applies and it is not limited to: using materials or aids that have not been approved by the instructor accessing course content from any unauthorized source copying another person's answer(s) or allowing your answer(s) to be copied sharing answers or consulting with another person through any means submitting an answer to an exam question that was completed, in whole or in part, by another person or outside of the exam room having someone take an exam for you or taking an exam for someone else 8. If you have a question or need to use the washroom, please put up your hand. Only one person is permitted to use the washroom at any given time. We will not answer any exam specific questions. 9. When you are done, please put up your hand and your paper will be collected. You can leave after your paper has been collected and you have signed out. No one will be allowed to leave during the last 15 minutes of the exam. STUDENT NAME (please print):___________________________________________________
ADMS 3541 Final Exam Giulio Iacobelli and Daniel Richards © 2023. All rights reserved. Page 2 of 17 STUDENT NUMBER:___________________________________________________________ STUDENT SIGNATURE:_________________________________________________________
ADMS 3541 Final Exam Giulio Iacobelli and Daniel Richards © 2023. All rights reserved. Page 3 of 17 Case study: Dale and Sara, both 40 years of age, are married with one child named Kevin. Kevin is 14 years old. Dale and Sara purchased a home using funds that Dale received from his parent’s estate a few years ago. Their current financial situation is as follows: Net Worth: Assets Liabilities House (Joint Names) 950,000 Mortgage (25 years, 5 year term, 4.5% interest) 500,000 Car (Dale) 25,000 Car loan (Dale) 15,000 Car (Sara) 24,000 Car loan (Sara) 10,000 Cash in Bank (Joint names) 2,000 Credit Cards 5,000 TFSA Dale 40,000 TFSA Sara 10,000 RRSP Dale 80,000 RRSP Sara 10,000 Bitcoin- Dale 48,000 Employment and Insurance Sara works for the government in the automobile licensing department. She has an annual salary of $85,000 per year, which is $65,000 after-tax. Dale works as a real estate agent. His gross salary is $60,000 per year and $48,000 per year after-tax. Sara’s employer provides group life insurance equal to 3 times her gross annual salary. Dale has a private life insurance policy with a face value of $250,000. Retirement Planning Dale and Sara save money in their RRSPs for retirement purposes only. Their plan is to use their RRSP accounts to fund their retirement. In addition, Sara belongs to her employers’ defined benefit pension plan and estimates it will pay her $28,000 a year starting at age 65 and will be adjusted for inflation annually in retirement. Dale does not have a pension but has RRSP contributed room. According to their notice of assessment, they both qualify for the CPP and OAS retirement benefit. The CPP benefit they will both receive is estimated to be $930 per month and OAS is estimated to be $550 a month, beginning at age 65. Based on their lifestyle, they want to have a combined annual before-tax income of $70,000 per year. They expect to live until age 95. Savings and Emergency Planning The money they have saved in the TFSAs are for individual purposes. Dale wants to use his savings to rebuild his garage and take a trip with his son Kevin to the US to watch the World Cup in 2026. Sara plans on using the funds in her TFSA to take a trip with her friends to Asia. Investments
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ADMS 3541 Final Exam Giulio Iacobelli and Daniel Richards © 2023. All rights reserved. Page 4 of 17 Dale was convinced by an online guru to purchase bitcoin using cash he received from his parent’s estate. Dale invested $80,000 into the coin which is now worth $48,000. The decline in the crypto market has made Dale very sceptical about investing in crypto. The funds in their TFSA’s are invested in cashable GICs paying 3.5% interest. Their RRSPs are invested in mutual funds at DT Bank. The investment allocation of both their portfolios are as follows: Asset Allocation Expected Return DT Bond Fund 60% 4.65% DT CAN Equity Fund 40% 8% Inflation is currently at 4%. Estate Planning Dale and Sara do not have wills. Sara has named Dale as her beneficiary on all her registered accounts and life insurance. Dale has named Sara as his beneficiary on all his registered accounts and life insurance.
ADMS 3541 Final Exam Giulio Iacobelli and Daniel Richards © 2023. All rights reserved. Page 5 of 17 ADMS 3541 Exam Formula Sheet ࠵?࠵?࠵?࠵?ℎ࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵? = . ࠵? ! ࠵? " !#$ ࠵?࠵?࠵?࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵? = 23(1 + ࠵? ! ) " !#$ 8 $ " − 1 ࠵?࠵?࠵? = ࠵? × ࠵? % ࠵?࠵?࠵? = (1 + ࠵? % ) % − 1 ࠵?࠵? = ࠵?࠵?(1 + ࠵?) " ࠵?࠵? = ࠵?࠵? (1 + ࠵?) " ࠵?࠵?࠵?࠵?࠵? = (1 + ࠵?) " − 1 ࠵? ࠵?࠵?࠵?࠵?࠵? = 1 − 1 (1 + ࠵?) " ࠵? ࠵?࠵?࠵?࠵?࠵? = ࠵? C [(1 + ࠵?) " − (1 + ࠵?) " ] (࠵? − ࠵?) G ࠵?࠵?࠵?࠵?࠵?࠵? = (1 + ࠵?)࠵?࠵?࠵?࠵?࠵? ࠵?࠵?࠵?࠵?࠵? = ࠵? I 1 − J 1 + ࠵? 1 + ࠵? K " (࠵? − ࠵?) L ࠵?࠵?࠵?࠵?࠵?࠵? = (1 + ࠵?)࠵?࠵?࠵?࠵?࠵? ࠵? "&% = (1 + ࠵? )(1 + ࠵?) − 1 ࠵? = 1 + ࠵? "&% 1 + ࠵? − 1 Liquidity Ratio = monetary liquid assets / monthly expenses Asset to debt ratio = total assets / total debts Debt payments-to-net income ratio = monthly non-mortgage debt payments / monthly net revenue Consumer debt ratio = Total consumer debt / annual net revenue
ADMS 3541 Final Exam Giulio Iacobelli and Daniel Richards © 2023. All rights reserved. Page 6 of 17 Periodic residential mortgage rate = !1 + !"# $ $ %/’ − 1 Marginal tax rates Interest Dividends- Canada excluding Ontario Dividends- Ontario only Capital Gain 80% rule Reimbursement= (L) x (I /(RV x 0.8) - D Actual Cash Value ACV = P – (CA x (P / LE)) Expected return and standard deviation E(r)= ∑ ࠵? ( ࠵? ( Expected return and standard deviation 2 asset portfolio Expected return and standard deviation 3 asset portfolio
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