 # QM

5 yrs Mr. X borrowed \$5000, interest rate 6%, He went away did pay anything and when he came he promised to make 5 equal payments on his original loan plus accumulated interest one year after he returned. how much does he pay per year? a. 1338.23 b. 1588.45 c. 1638.23 d. 1788.45 An investments has amean of 15% and std devuation of 10%. If distribution is normal which statement is incorrect? the probability of getting a return: a. less than 5% is about 16% b. greater than 5% is 84% c. Greater than 35% id about 2.5% d. between 5% and 25% is about 95%

1 is B. and 2 is c.

D

Sorry meant D for the 2nd question

2nd q: mean=15, stddev=10 5 --> 2 std devs around mean --> 5->25 = 68% of population. so less than 5% is 1/2(32) = 16%. So a is correct. if a is correct --> b is also right. c. > 35% 35-15/10 = 2 std from mean. so 2.5% is right.

I’d say B for first question, for the second question i am kinda confused between B and C but i’d pick C.

the first is B. but my problem is that he is paying after 6 years if you consider that he will start repaying one year after his return so it you compute future value for isx years the answer will not be B. cam some please explain why they are ignoring the extra 1 yr after his return before he started making the payments? D is correct but I can follow a thing on what CPK 123 is doing. this topic is one of my weak areas CPK could you please explain clearly as you would do to a your two year daughter.

audrey need to draw a figure to explain it easily. will try to explain it to the best of my ability. so look at the famed bell shaped normal distibution curve. center is mean. mean - 1 std to mean + 1 std dev ==> has 68% of the population. with me so far? so on either side of +1 std and -1 std you have 16% each. (area under the whole curve =100%, and it is symmetrical about the mean). so that explains Point A and point B. mean -2 std to mean + 2std covers 95% of population. So on the side of +2std you have 2.5% of the population. explains point C. now for Point D–> d. between 5% and 25% is about 95% 5% = -1std from mean 25% = +1 std from mean. from the first above – area = 68% --> So this is wrong. Does it now make sense? Try to correlate in this sense about +/- x stds (1,2,3) from the mean. Now the other thing, (next level) --> what is a standard normal curve --> your centre point is 0. So technically you have moved the entire thing to the origin, so you have subtracted the mean from all your observations. Does it make sense? (2 year old daughters would have trouble following stat, but maybe 10-12 years old I can try). CP

Q1, I have the same confusion as you do, but you fail to put the question clear, please type the exact word of the question. I remember the question says something like: he makes payment at the end of each year and starts one year after he comes back. My understanding is like yours – there is one extra year to get FV of initial loan amount. Q2, just remember 68% probability covers ± 1 standard deviation, 95% covers ±2 SD, and 99% covers ±3 SD. Only D is wrong.

Again I missed out the “incorrect” part in the question. phew, 4th mistake due to not reading the Q right. i hate myself.

CPK, its kind of begging to make sense but i have printed and i will read it again at home. its 10:50pm here in Malawi and i now have to leave the office. thank you so much but i need to practice more. i will call on you again when i try more questions. Hopetobeat- thanks for the addition. i know bits and pieces of these numbers you put, but to make use of them in a question everything just falls apart. I tried Shweser the QM questions this afternoon my score on QM was 66. I really need to pull up. Thank you guys am out will join tomorrow. you are right about the question but I thought is still gives the same massage. may be I will just post it again tomorrow.

pepp Wrote: ------------------------------------------------------- > Again I missed out the “incorrect” part in the > question. > > phew, 4th mistake due to not reading the Q right. > i hate myself. you ain’t alone on this one… its frustrating as hell

First one: my understanding is that the borrower pays at the end of first year. As far as i remember (I saw this problem once), the guy took his wife for a vacation, borrowing the 5,000. How long can the 5,000 can take them? About 2 weeks I would say:) Ok, going back to it, 5000 will be paid with interest over a period of 5 years, that is, the FV of this amount by the end of the fifth year would be: 5000*1.06^5=6,691.128. The poor guy has to pay this amount to the lender, in 5 equal instalments. To him, this is in fact the PV of the 5 installments. N=5, I/Y=6, PV=-6,691.128, FV=0. PMT is 1,588.449~1,588.45. Sounds fabricated but if you think a bit, is not. B is the answer. For the second: as many of you already put it, D is the answer.

D for the second one, confirmed. 68,95,99 = 1,2,3, that is how I remember it