# Quant

An investor wants to receive 10,000 annually for ten years with the first payment 5 years from tody. If the investor can earn a 14% annual return, the amount that she will have to invest today is closes to A>27091 B>30884 C>52161 D>73667 Alex, White the current portfolio manager is examining his portfolio. The portfolio contains 100 stocks that are either value or growth stocks. 40% of the stocks are value stocks. A previous portfolio manager selected 70% of the value stocks and 80% of the growth stocks. What is the probability of selecting at random that is either a value stock or was selected by a previous portfolio manager ? A>28% B>76% C>88% D>16% Please explain your answers.

A A

B N=10 I/Y=14 PMT=10000 FV=0 CPT PV=52161 N=4 I/Y=14 FV=52161 PMT=0 CPT PV=30884 C P(A or B) = 40% + P(selected|growth) = 0.4 + 0.8*0.6 = 0.88

52,161 is the present value of 10k a year for 10 years at a 14% rate. You need to discount that back to the present period, so by 1.14^5. So the answer is A. Previous guy picks 70 stocks, 28 which were value. 70+40-28? I want to say 82!

1B use the beginning mode fv=0 pmt = 10000 i=14% n = 10 --> pv(5)=59,463.21 then FV=59,463.21 n=5 pmt=0 --> pv=30,883.59

Answers 1>B 2>C for 1 yes should be calculated in beginning mode for 2 P( value or Previous M) = P(Value) + P(PM) - P(VPM) = 0.4+(0.7 * 0.4+ 0.8 * 0.6) - (0.7*0.4)

1 - B 2 - C at first i thought those were greater than signs next to the answers…

koppcha Wrote: ------------------------------------------------------- > An investor wants to receive 10,000 annually for > ten years with the first payment 5 years from > tody. If the investor can earn a 14% annual > return, the amount that she will have to invest > today is closes to > > A>27091 > B>30884 > C>52161 > D>73667 A do a PV of an annuity for 10 yrs then do a PV of a lump sum these are common

I think that the key to getting these questions right is to draw out a timeline. Although it takes a few extra seconds, you can see how to calculate the answer much easier than just pluging numbers in your calculator. It also helps make sure that you have your calculator in the right mode (BEG or END).

B don’t forget to put the calc in BGN mode OR compute PV(10 PMT, 10 N, 14 I/Y) then discount that back at 4 years. C

mcf Wrote: ------------------------------------------------------- > 52,161 is the present value of 10k a year for 10 > years at a 14% rate. You need to discount that > back to the present period, so by 1.14^5. > > So the answer is A. > > Previous guy picks 70 stocks, 28 which were value. > 70+40-28? I want to say 82! 40 + 80%*60 = 40 + 48 = 88

So what’s the verdict on the PV for the first question. Is it 4 years or 5 years. You get the cash flow 5 years from today… that seems like you would have to discount by the rate to the 5th power.

I don’t have calculator, but heres what i’d do PMT = 10000 n=10 r = 14% comput PV this PV is at the end of 4 years. so again you do FV = PV4 r =14 n=4 comput PV again.

Agreed with Pepp Question 1 is B You want 10k annually with the first payment starting 5 years from today: This means that 4 years from today you will buy an annuity to generate this stream. time 10 rate 14% pmt 10k PV 52,161 Therefore, in exactly 4 years (when you buy the annuity) you will ned 52k. In todays dollars that is 52k / 1.14^4, or 30.8k