DSC1630/SOL04/1/2024

Solution Assignment 04

Introductory Financial Mathematics

DSC1630

Semester 1

Department of Decision Sciences

Important Information:
This document contains the solutions of
Assignment 04.
 DSC1630/SOL04/1

Dear student
The solutions to the questions of the mandatory Assignment 04 are included in this document. Study
them when you prepare for the examination. We have added comments on how to approach each
problem.

You will also find the key operations for the SHARP and the HP calculators at the end of each
answer. We hope it will help you to understand the workings of your calculator. Just remember
that these key operations are not the only method, these are just examples. You can use
any method as long as you get the same answer. Please download the calculator notes/booklet
from myUnisa under Additional Resources.
REMEMBER TO CLEAR ALL DATA FROM THE MEMORY BEFORE YOU ATTEMPT ANY
CALCULATIONS.

• SHARP EL-738 and newer versions users: Press 2ndF M-CLR 0 0 if you wish to clear
all the memories and 2ndF CA if you just want to clear only the financial keys.

• HP10BII and newer versions users: Press C ALL

Note: the final answer displayed on your calculator depends

on how many decimals your calculator’s display is set to.
Set it to 6 or more decimals and only round off the final
answer to the required number of decimals as given in the
options of the answers.

You are also welcome to contact us by e-mail if you need help regarding the study material. Our
contact hours are 07:00 until 16:00 - Monday till Friday.
Our contact details:

Mrs Adéle Immelman Mrs Willemien van Hoepen

E-mail: [email protected] E-mail: [email protected]
Tel: +27 12 433 4691

Lastly, everything of the best with Assignment 05, the mock exam. Please work through Assignments
1 to 4 in preparation for the mock exam.

Kind regards,

Mrs Adéle Immelman and Mrs Willemien van Hoepen

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1 Correct Answers
Please note that in the quiz on myUnisa the answer options were randomised. Compare your answer
to the question’s final answer.

2 Solution Summary
The following is a summary of the correct answers:

Q1 Option c
Q2 Option b
Q3 Option d
Q4 Option a
Q5 Option d
Q6 Option d
Q7 Option b
Q8 Option c
Q9 Option d
Q 10 Option a
Q 11 Option d
Q 12 Option a
Q 13 Option c
Q 14 Option a
Q 15 Option d

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3 Assignment 04 – Detailed Solution

Question 1
Down-To-Earth sells houses. The following table represents the selling price of a house (y) in thou-
sands of rand and the number of houses sold at that price (x ).

x 5 15 19 7
y 500 900 1 500 2 000

The standard deviation for the number of houses sold is

[a] 4,0.
[b] 5,7.
[c] 6,6.
[d] 11,5.

We need to determine the standard deviation of the number of houses sold. Using the statistical keys
of our calculator and entering the data points, we determine that the value of sx as
sx = 6,60808 . . .

The standard deviation is 6,6.

EL-738/F/FB
Switch to STA mode with two vari- HP10BII/HP10BII+
ables
MODE 1 1 Clear all the keys C ALL

Clear all the memory keys C STAT [on → M key]

2ndF M CLR 0 0 Enter the data
Enter the data 5PINPUT [second row, first key] 500
5 (x,y) [next to the ENT keys] 500 + [third row,P
fourth key]
DATA [on the ENT key] 15 INPUT 900 P+
15 (x,y) 900 DATA 19 INPUT 1 500P +
19 (x,y) 1 500 DATA 7 INPUT 2 000 +
7 (x,y) 2 000 DATA Calculate s

Calculate s sx , sy [on 8 key]

ALPHA sx = [on 5 key] 6.60807. . . is displayed.
sx = 6.60807. . . is displayed.

[Option c]

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Question 2
Down-To-Earth sells houses. The following table represents the selling price of a house (y) in thou-
sands of rand and the number of houses sold at that price (x ).

x 5 15 19 7
y 500 900 1 500 2 000

The correlation coefficient of a linear regression between x and y is approximately

[a] r = −0,16.
[b] r = 0,16.
[c] r = 4,00.
[d] r = 5,72.

We need to determine the correlation coefficient, r, of the fitted line that represents the data. The
correlation coefficient tells you how strong the linear relationship between the two sets of data is.
Using the statistical keys of our calculator and entering the data points we determine that the
correlation coefficient is
r = 0,16427 . . .

EL-738/F/FB
Switch to STA mode with two variables HP10BII/HP10BII+
MODE 1 1 C ALL
Clear all the memory keys Clear all the memory keys
2ndF M CLR 0 0
CL [on →M key]
P
Enter the data
5 (x,y) [next to the ENT keys] 500 Enter the data
DATA [on the ENT key] 5PINPUT [second row, first key] 500
15 (x,y) 900 DATA + [third row,P
fourth key]
19 (x,y) 1 500 DATA 15 INPUT 900 P+
7 (x,y) 2 000 DATA 19 INPUT 1 500P +
7 INPUT 2 000 +
Calculate r
ALPHA r = [below DEL key] To get the value of r press
0.16427. . . is displayed. x̂,r SWAP [on K key]
Cancel STA mode: 0.16427. . . is displayed.
MODE 0

[Option b]

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Question 3
The following table represents the cash inflows of a boutique for nine years.

Year Cash inflow

(R)
3 45 000
6 90 000
9 115 000

The applicable interest rate is 11,59% per year. The present value of the cash outflows is R95 000.

The future value of the cash inflows is approximately

[a] R169 330.

[b] R218 000.
[c] R250 000.
[d] R326 950.

The future value of the cash inflows is the future value of all the positive cash flows. As we need to
determine the future value it means we must move each inflow to the end of the investment period,
namely year nine, and then add them together to determine the total future value of all the inflows.
A future value is calculated using  tm
jm
S =P 1+ .
m

The time line is:

R45 000 R90 000 R115 000

now 3 6 9 years

We need to move the R45 000 from year three to year nine, thus six years forward; the R90 000 from
year six to year nine, thus three years forward, and the R115 000 is already at year nine. Thus the
total future value is

FV = 45 000(1 + 0,1159)6 + 90 000(1 + 0,1159)3 + 115 000

= 326 948,852 . . .

The future value of the cash inflows is approximately R326 950.

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EL-738/F/FB HP10BII/HP10BII+
Use financial keys Use financial keys
Remember we calculate the FV of each Remember we calculate the FV of each
inflow then add them together in memory inflow then add them together in memory
2ndF M-CLR 0 0 C ALL
2ndF P/Y 1 ENT ON/C 1 P/YR
11.59 I/Y 11.59 I/YR
45 000± PV 45 000± PV
6N 6N
COMP FV FV
86 888.876. . . is displayed. Store in memory 86 888.876. . . is displayed. Store in memory
M+ →M
Calculate second FV. P/Y and I/Y Calculate second FV. P/YR and I/YR
are already stored. are already stored.
3N 3N
90 000± PV 90 000± PV
COMP FV FV
125 059.976. . . is displayed. Add to 125 059.976. . . is displayed. Add to
memory memory
M+ M+
Recall total memory value and add 115 000 Recall total value and add 115 000
RCL M+ + 115 000 = RM +115 000 =
326 948.852. . . is displayed. 326 948.852. . . is displayed.

Note: As the I/Y or I/YR value stays the same in all the calculations we enter it only
once.
[Option d]

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Question 4
The following table represents the cash inflows of a boutique for nine years.

Year Cash inflow

(R)
3 45 000
6 90 000
9 115 000

The applicable interest rate is 11,59% per year. The present value of the cash outflows is R95 000.
The MIRR is

[a] 14,72%.
[b] 21,25%.
[c] 31,90%.
[d] 38,06%.

We are asked to calculate the MIRR value. The MIRR formula consists of the future value of the
cash inflows and the present values of the cash outflows. Now given is the present value of the cash
outflows and calculated in Question 3, is the future value of the cash inflows.

Thus
  n1
C
MIRR = −1
P Vout
  19
326 948,85
MIRR = −1
95 000
= 0,1472 . . .

The MIRR is 14,72%.

EL-738/F/FB HP10BII/HP10BII+
2ndF M CLR 0 0 C ALL
Use normal keys Use normal keys
(326 948.85 ÷ 95 000) 326 948.85 ÷ 95 000 =
2ndF y x (1 ÷ 9) = −1 = yx (1 ÷ 9 ) = −1 =
0.147201. . . is displayed. 0.147201. . . is displayed.
Multiply by 100 to get percentage Multiply by 100 to get percentage
×100 = ×100 =
14.7201. . . is displayed. 14.7201. . . is displayed.

[Option a]

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Question 5
Consider Bond F234
Coupon rate (half yearly) 10,5% per year
Yield to maturity 7,955% per year
Maturity date 8 October 2058
Settlement date 29 May 2024
The all-in-price is

[a] R123,49852%.
[b] R126,13814%.
[c] R129,73733%.
[d] R131,24248%.

We need to determine the all-in price of the Bond F234. First we draw the time line of the Bond
F234:

H R

P re v io u s S e ttle m e n t N e x t c o u p o n S e c o n d la s t M a tu rity
c o u p o n d a te d a te d a te c o u p o n d a te d a te

8 /4 /2 1 2 9 /5 /2 1 8 /1 0 /2 1 8 /4 /5 5 8 /1 0 /5 5

s ix m o n th s s ix m o n th s

We use the following formula to determine the price on 08/10/24:

P = da n z + 100(1 + z)−n

where n is the number of outstanding coupon payments after the settlement date until the maturity
date.
Now given is z = 0,07955 ÷ 2; and d = 10,5 ÷ 2. All we need is n, the number of half years.
To calculate n we must first determine the number of years from the next coupon date until the
maturity date.
The month of the coupon date (10) and the maturity date (10) is the same. We subtract the years
2058 − 2024 = 34 years.
This 34 must be multiplied by two to obtain half years.

n = 34 × 2
= 68

We multiply it by two because the coupon payments are made every six months. The number of
coupon payments n are therefore 68.

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TIPS TO CALCULATE n IN GENERAL:

Now n is the number of half years from the coupon date after the settlement date, until the maturity date.
As a start we determine the first coupon date after the settlement date. Secondly we determine the number of
half years until the maturity date. Now there are two situations that can exist when calculating n:
1. If the month of the next coupon date is the same as the month of the maturity date then
subtract the year of the next coupon date from the year of the maturity date - that gives you the number
of years until maturity. But you need the number of half years until maturity thus multiply the years
by 2 to calculate n.
For example:
Settlement date is 14/9/2013
Next coupon is 4/10/2013
Maturity date is 4/10/2034
Now because the months of the next coupon date and the maturity date are the same namely month 10
we subtract the years namely 2034 − 2013 = 21 years thus 21 × 2 = 42 half years. Thus n = 42.

2. If the month of the next coupon date is the different from the month of the maturity date
then ignore the next coupon date and move to the second coupon date from the settlement date - thus
you try to get the months the same.
Subtract the year of the second coupon date from the year of the maturity date as in method 1 - that
gives you the number of years. But you need the number of half years thus multiply the years by 2 and
then add 1 for the period you have ignored.
For example:
Settlement date is 14/9/2013
Next coupon is 4/10/2013
Maturity date is 4/4/2034
Now the month of the next coupon and maturity is different. Thus ignore the first coupon date 4/10/2013
and look at the next coupon date which is 4/4/2014. Now the month of the coupon date 2 and the
maturity date is the same, namely month 4. We subtract 2034 − 2014 = 20 years, thus 20 × 2 = 40 half
years but we have ignored one period thus n = 40 + 1 = 41.

P (08/10/24) = da n z + 100(1 + z)−n

10,5 0,07955 −68
= a 68 0,07955÷2 + 100(1 + )
2 2
= 122,68841 + 7,04892
= 129,73733

The present value of Bond F234 is R129,73733%.

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As the settlement date is more than 10 days from the next coupon date we must add the coupon
that is due on 8 October 2024 and we call it a cum interest case.

P (08/10/24) = 129,73733 + 5,25

= 134,98733

The present value of Bond F234 on 8 October 2024 is R134,98733%.

NOTE: Always use 365 days in a year unless specified that it is a leap year.

This present value must be discounted back to the settlement date of 29 May 2024 by using the
fraction f = H
R
.
R is the number of days from the settlement day until the next coupon date. R equals day number
281 (8 October) minus day number 149 (29 May). R = 132.
H is the number of days in the half year (between the previous coupon date and the following coupon
date) in which the settlement date falls. H equals day number 281 (8 October) minus day number
98 (8 April). H = 183.
 − 132
0,07955 183
All-in price = 134,98733 1 +
2
= 131,24248

The all-in price is R131,24248%.

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Remember to set your calculator’s decimal display to five decimals for the R% format.

EL-738/F/FB HP10BII and HP10BII+

2ndF M-CLR 0 0 C ALL
First we calculate the PV First we calculate the PV
of the 100 of the 100
2ndF P/Y 2 ENT ON/C
±100 FV 2 P/YR
7.955 I/Y 100± FV
68 N 7.955 I/YR
COMP PV 68 N
7.04892 is displayed. PV
DO NOT CLEAR!!!! 7.04892 is displayed.Clear screen
C
Secondly, we calculate the
PV of the coupon flow. The P/Y, N and Secondly, we calculate the
I/Y are the same PV of the coupon flow.The P/YR, N and
as above and is already entered. We just I/YR are the same
enter the PMT value as above and is already entered. We just
10.5 ÷ 2 = × ± 1 =PMT enter the PMT value
COMP PV 10.5 ÷ 2 = ±PMT
The value at 08/10/24 PV
129.73733 is displayed. The value at 08/10/24
DO NOT CLEAR!!!! 129.73733 is displayed.

Add a coupon as it is cum interest. Add a coupon as it is cum interest.

+5.25 = +5.25 =
134.98733 is displayed. 134.98733 is displayed.
Now use it to get the all-in price Now use it to get the all-in price
Store this answer as FV and make PMT Store this answer as FV and make PMT
zero zero
The P/Y and I/Y are the same as above The P/YR and I/YR are the same as above
× ± 1 = FV ± FV
0 PMT 0 PMT
132 ÷ 183 =N 132 ÷ 183 =N
COMP PV PV
131.24249 to five decimals is displayed. 131.24249 to five decimals is displayed.

[Option d]

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Question 6
The equation for the present value of Bond AAA on 17/06/2024 is given by
 −29
0,135
107,55174 = da n z + 100 1 + .
2
The yearly coupon rate is

[a] 6,75%.
[b] 7,35%.
[c] 8,55%.
[d] 14,70%.

We need to determine the yearly coupon rate or c. Now given is a formula which includes the half-
yearly coupon rate, d. Thus if we can solve for d, we can just multiply it by two to get the yearly
coupon rate, c. To solve for d, we first manipulate the formula until it looks similar to an annuity
formula and then solve for d (or PMT), using our calculator.

P = da n z + 100(1 + z)−n
 −29
0,135
107,55174 = da n z + 100 1 +
2
107,55174 = da 29 0,135÷2 + 15,04289
da 29 0,135÷2 = 107,55174 − 15,04289
da 29 0,135÷2 = 92,50885
d = 7,35

The yearly coupon rate is 7,35 × 2 = 14,70%.

EL-738/F/FB HP10BII/HP10BII+
2ndF M-CLR 0 0
C ALL
Use financial keys
Use financial keys
2ndF P/Y
2 ENT ON/C 2 P/YR
±92.50885 PV 92.50885± PV
29 N 29 N
13.5 I/Y 13.5 I/YR
COMP PMT PMT
7.35 is displayed. 7.35 is displayed.
7.35 × 2 = 7.35 × 2 =
14.70 is displayed. 14.70 is displayed.

[Option d]

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Question 7
Consider Bond ABC

Coupon rate: 9,75% per year

Yield to maturity: 11,4% per year
Maturity date: 15 April 2042
Settlement date: 29 November 2016

The accrued interest is

[a] R1,18207%.
[b] R1,20205%.
[c] R2,34537%.
[d] R5,87781%.

We need to determine the accrued interest of Bond ABC. First we draw our time line:
H
R

P re v io u s S e ttle m e n t F o llo w in g S e c o n d la s t M a tu rity

c o u p o n d a te d a te c o u p o n d a te c o u p o n d a te d a te

1 5 /1 0 /2 1 2 9 /1 1 /2 1 1 5 /4 /2 2 1 5 /1 0 /4 6 1 5 /4 /4 7

s ix m o n th s s ix m o n th s

As there are more than 10 days from the settlement date to the following coupon date this is a
cum-interest case. The accrued interest can be calculated using the formula H−R
365
× c.
Now given is the yearly coupon rate (c) of 9,75%. We need to determine H and R.
As the R and H periods stretch over more than one year we can’t just subtract the day numbers.
We make use of a different method to calculate R and H in this situation.

NOTE: Always use 365 days in a year unless specified that it is a leap year.

Calculating R:
R is the number of days from the settlement date 29/11/2016 to the next coupon date 15/04/2017.

Method 1:
As the days are over different years, namely 2016 and 2017 we first count all the days in one year
(2016) and then add the other days in the next year (2017). Thus we add all the days in 2016 from
29 November until 31 December, including 31 December, plus all the days in 2017 from 1 January
2017 until 15 April (not included). We include 31 December since it forms part of the total time
from 29/11/2016 to the next coupon date 15/04/2017. We can’t leave it out.

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1 + 2

2 9 N o v 2 0 2 1 3 1 D e c 2 0 2 1 1 5 A p ril 2 0 2 2
3 3 3 3 6 5 1 0 5

1. Count all the days starting from 29/11/2016 until 31/12/2016. Thus, by using the
date table, the number of days between 29 November and 31 December is 365 − 333 = 32. But
this doesn’t include 31 December. Thus we need to add one day as 31 December is still part
of the whole time period. Thus there are 33 days from 29 November 2016 until and including
31 December.

2. Count the days from 01/01/2017 until 15/04/2017 (not included as the rule says always
include the first day but not the last day of your total time period). The number of days from
1 January till 15 April, using date numbers in the date table, is 105 − 1 = 104.

3. Add the two date periods together. The total number of days between 29/11/2016 and
the next coupon date 15/04/2017 is R = 104 + 33 = 137.

Method 2:
Ignore the years and first subtract the date value in the date table of 15 April from 29 November
which gives you 333 − 105 = 288 days. But as the two dates are in different years (2016 and 2017)
you subtract 288 from 365 to get R = 365 − 288 = 137.

Or day number 365 minus day number 333 (29 November) plus day number 105 (15 April) gives you
R = 137.

Calculating H
H is the number of days in the half year in which the settlement date falls, i.e. from the coupon date
before the settlement date (15/10/2016), to the coupon date after the settlement date (15/04/2017).
Again there are two ways of calculating it.

Method 1:
As the days are over different years namely 2016 and 2017 we first count all the days in one year
(2016) and then add the other days in the next year (2017). Thus we add all the days in 2016 from
15 October 2016 until 31 December 2016, including 31 December, plus all the days in 2017 from
1 January 2017 until 15 April (not included). We include 31 December since it forms part of the
total time from 15/10/2016 to the next coupon date 15/04/2017. We can’t leave it out.

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1 + 2

1 5 O c t 2 0 2 1 3 1 D e c 2 0 2 1 1 5 A p ril 2 0 2 2
2 8 8 3 6 5 1 0 5

1. Count all the days starting from 15/10/2016 until 31/12/2016. Thus by using the date
table, the number of days between 15 October 2016 and 31 December 2016, is 365 − 288 = 77.
But this doesn’t include 31 December. Thus we need to add one day as 31 December is still
part of the whole time period. Thus there are 78 days from 15/10/2016 until 31 December
2016, including 31 December.

2. Count the days from 01/01/2017 till 15/04/2017 (not included as the rule says always
include the first day but not the last day of your total time period). The number of days from
1 January till 15 April, using date numbers in the date table, is 105 − 1 = 104.

3. Add the two date periods together. Thus total number of days between 15/10/2016 and
the next coupon date 15/04/2017 is H = 104 + 78 = 182 days.

Method 2:
Ignore the years and first subtract the date value in the date table of 15 April from 15 October which
gives you 288 − 105 = 183 days. But as the two dates are in different years (2016 and 2017) you
subtract 183 from 365 which gives you H = 365 − 183 = 182 days.
Or day number 365 minus day number 288 plus day number 105 gives you, H = 182.

Now to calculate the accrued interest:

H −R
Accrued interest = ×c
365
182 − 137
= × 9,75
365
= 1,20205

The accrued interest is R1,20205%.

[Option b]

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Question 8
Consider Bond ABC

Coupon rate: 9,75% per year

Yield to maturity: 11,4% per year
Maturity date: 15 April 2042
Settlement date: 29 November 2016

The clean price is

[a] R81,69720%.
[b] R85,22964%.
[c] R86,37296%.
[d] R86,39294%.

We need to determine the clean price of Bond ABC. First we draw our timeline:
H
R

P re v io u s S e ttle m e n t F o llo w in g S e c o n d la s t M a tu rity

c o u p o n d a te d a te c o u p o n d a te c o u p o n d a te d a te

1 5 /1 0 /2 1 2 9 /1 1 /2 1 1 5 /4 /2 2 1 5 /1 0 /4 6 1 5 /4 /4 7

s ix m o n th s s ix m o n th s

We must first determine the number of years from the following coupon date until the maturity date,
and then multiply it by two to get the number of half-yearly coupons. As the maturity date’s month
and the month of the following coupon date is the same, namely April, we subtract the years.

Years = 45 − 20
= 25

We now multiply 25 by two to get the number of half-yearly coupons, n. Our n in the formula will
be 2 × 25 = 50.

P (15/04/2017) = da n z + 100(1 + z)−n

 −50
9,75 0,114
= a + 100 1 +
2 50 0,114÷2 2
= 86,43169

The present value on 15 April 2017 is R86,43169%. This is a cum-interest case and we must add the
coupon that we have previously ignored. This present value is thus

R86,43169% + R4,875% = R91,30669%,

and must now be discounted back to the settlement date, by using the discount factor of f = R
H
, to
determine the all-in-price.

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NOTE: Always use 365 days in a year unless specified that it is a leap year.

R is the number of days from the settlement date to the next coupon date and was calculated in
Question 7 as R = 137.
H is the number of days in the halfyear in which the settlement date falls and was calculated in
Question 7 as H = 182.
 −137/182
0,114
All-in-price = 91,30669 1 +
2
= 87,57501

The all-in-price on 29 November 2016 is R87,57501%.

The clean price = all-in-price − accrued interest (Question 7)

= 87,57501 − 1,20205
= 86,37296

The clean price is R86,37296%.

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HP10BII/HP10BII+
EL-738/F/FB
C ALL
2ndF M-CLR 0 0
2ndF P/Y 2 ENT ON/C 2 P/YR
±9.75 ÷ 2 = PMT 9.75 ÷ 2 = ± PMT
11.4 I/Y 11.4 I/YR
50 N 50 N
COMP PV PV
80.17636 is displayed. Store for later 80.17636 is displayed
use. →M
M+ Calculate the PV of the 100. All the
Calculate the PV of the 100. All the values are the same except we need to
values are the same except we need to make the PMT zero
make the PMT zero 100± FV
±100 FV 0 PMT
0 PMT PV
COMP PV 6.25534 is displayed.
6.25534 is displayed. Add in memory
Add to memory + RCL M+ = + RM =
86.43169 is displayed 86.43169 is displayed
Add coupon +4.875 = Add coupon
91.30669 is displayed. Store it as FV +4.875 =
× ± 1 = FV 91.30669 is displayed. Store it as FV
137 ÷ 182 = N ± FV
COMP PV 137 ÷ 182 = N
87.57502 is displayed. Calculate the PV
clean price. 87.57502 is displayed. Calculate the
−1.20205 = clean price.
86.37297 is displayed. −1.20205 =
86.37297 is displayed.

[Option c]

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Question 9
If the NPV (Net Present Value) of a shop is R195 000 and the profitability index is 1,24375, the
initial investment in the shop is

[a] R86 908.

[b] R156 784.
[c] R195 000.
[d] R800 000.

The terms NPV and profitability index are given in the question. The formula for NPV is

N P V = P Vin − initial investment

and the profitability index is

N P V + initial investment
PI = .
initial investment
Now given are the N P V and P I. Thus if we need to determine the initial investment we can only
make use of the P I formula as the P Vin term in the NPV formula is not given. Now let the initial
investment be x. Then

N P V + initial investment
PI =
initial investment
195 000 + x
1,24375 =
x
1,24375x = 195 000 + x
1,24375x − x = 195 000
x(1,24375 − 1) = 195 000
x(0,24375) = 195 000
195 000
x =
0,24375
x = 800 000

The initial investment was R800 000.

[Option d]

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Question 10
An estate agent suspects that there is a linear relationship between the number of houses sold and
the monthly loan payments. She analyses the following data over the past six months.

Number of houses Monthly loan

sold, x payments (in R1 000’s), y
160 3,7
250 5,6
800 7,5
450 11,3
120 18,9
50 28,4

The regression line equation is

[a] y = −0,016x + 17,45.

[b] y = 17,45x − 0,016.
[c] y = −13,99x + 480,89.
[d] y = 480,89x − 13,99.

We need to determine the equation of the regression line. Using the statistical keys of our calculator
we determine that
y = −0,016x + 17,45.

EL-738/F/FB
Use STAT mode with
two variable input HP10BII/HP10BII+
MODE 1 1 Clear the memory keys
Clear the memory keys CL
P
[on →M key]
2ndF M CLR 0 0 Enter the data P
Enter the data 160 INPUT 3.7 P +
160 (x,y) 3.7 DATA [on the ENT key] 250 INPUT 5.6 P +
250 (x,y) 5.6 DATA 800 INPUT 7.5 P+
800 (x,y) 7.5 DATA 450 INPUT 11.3 P +
450 (x,y) 11.3 DATA 120 INPUT 18.9P +
120 (x,y) 18.9 DATA 50 INPUT 28.4 +
50 (x,y) 28.4 DATA 0 ŷ,m [on 5 key]
ALPHA a = 17.448. . . is displayed
a = 17.448 . . . is displayed.
ALPHA b = SWAP [on K key]
b = −0.016. . . is displayed. −0.016 . . . is displayed.
Cancel STA mode:
MODE 0
[Option a]

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 DSC1630/SOL04/1

Question 11
The next coupon date that follows the settlement date of a bond is 28 October 2024. The half-yearly
coupon rate is 7,375%. The accrued interest equals R5,49589%. If this is a cum interest case, the
settlement date for this bond is

[a] 14 June 2024.

[b] 30 July 2024.
[c] 29 August 2024.
[d] 11 September 2024.

We need to determine the settlement date of a bond. Now given are the accrued interest, the half-
yearly coupon rate and the next coupon date after the settlement date. Drawing a time line:

Now given is the accrued interest and the fact that this is a cum interest case. We use the following
formula to determine R:
H −R
Accrued interest = ×c
365
Now the given coupon date is 28 October each year. Thus the second coupon date is six months
before or after (coupon payable every six months) the given date, thus 28 April each year.
NOTE: Always use 365 days in a year unless specified that it is a leap year.
H is the number of days in the six months where the settlement date falls in, i.e. between 28/04/24
and 28/10/24. H equals day number 301 (28 October) minus day number 118 (28 April), namely
183. We also know that the half-yearly coupon rate is 7,375%, thus the yearly coupon rate c is
7,375% × 2. Now
183 − R
5,49589 = × (7,375 × 2)
  365
5,49589 × 365
= 183 − R
7,375 × 2
 
5,49589 × 365
− 183 = −R
7,375 × 2
 
5,49589 × 365
R = 183 −
7,375 × 2
R = 47.

R is the number of days between the settlement date and the next coupon date. We must now move
47 days back from 28 October 2024 to obtain the settlement date.
Now 28 October is date number 301. Thus 301 − 47 will give us day number 254. Using the date
table in the study guide we determine that date number 254 is 11 September 2024.

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 DSC1630/SOL04/1

HP10BII/HP10BII+
EL-738/F/FB C ALL
2ndF M CLR 0 0 Use normal keys
Use normal keys 5.49589 × 365 =
183 − (5.49589 × 365)÷ ÷ (7.375 × 2 )=
(7.375 × 2) = →M
47 is displayed. 183 − RM =
47 is displayed.

[Option d]

Question 12
An investment with an initial outlay of R500 000 generates five successive annual cash inflows of
R75 000, R190 000, R40 000, R150 000 and R180 000 respectively. The internal rate of return (IRR)
is

[a] 7,78%.
[b] 9,48%.
[c] 21,3%.
[d] 27,0%.

We are asked to determine the IRR for five successive annual cash inflows. Thus using the formula
for the IRR we can write
75 000 190 000 40 000 150 000 180 000
0= + 2
+ 3
+ 4
+ − 500 000.
1 + R (1 + R) (1 + R) (1 + R) (1 + R)5

Using your calculator we determine that the IRR is 7,78%.

EL-738/F/FB HP10BII/HP10BII+
2ndF M CLR 0 0 C ALL
±500 000 DATA [last key, fifth row ]
75 000 DATA 1 P/YR
190 000 DATA 500 000 ± CFj [third key, third row ]
40 000 DATA 75 000 CFj
150 000 DATA 190 000 CFj
180 000 DATA 40 000 CFj
ON/C 150 000 CFj
2ndF CASH [last key, fourth row ] 180 000 CFj
2ndF CA COMP IRR/YR [third key, second row ]
7.78. . . is displayed. 7.78. . . is displayed.

[Option a]

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Question 13
The following figures show the profit of a greengrocer for the past five years: R360 000, R550 000,
R200 000, R80 000 and R700 000. The arithmetic mean of the data is

[a] R225 424.

[b] R252 032.
[c] R378 000.
[d] R1 890 000.

We are asked to determine the arithmetic mean of the given data. The arithmetic mean (x̄) is
calculated as
Pn
i=1 xi
x̄ =
n
360 000 + 550 000 + 200 000 + 80 000 + 700 000
=
5
1 890 000
=
5
= 378 000.

The arithmetic mean is R378 000.

EL-738/F/FB
Clear the memory
HP10BII/HP10BII+
2ndF M CLR 0 0
Clear the memory
Change to STAT mode with one variable input
CL
P
MODE 1 0
Enter the
Pdata
Enter the data 360 000 P +
360 000 DATA 550 000 P +
550 000 DATA 200 000P +
200 000 DATA 80 000 P+
80 000 DATA 700 000 +
700 000 DATA
Calculate the mean
Calculate the mean
x̄, ȳ [second key, fifth row ]
ON/C
378 000 is displayed.
RCL x̄ [first key, seventh row ]
378 000 is displayed.

[Option c]

24
 DSC1630/SOL04/1

Question 14
You must choose between two investments, A and B. The profitability index (PI), net present value
(NPV) and internal rate of return (IRR) of the two investments are as follows:

Criteria Investment A Investment B

NPV R44 000 −R22 000
PI 1,945 0,071
IRR 16,00% 8,04%

Which investment(s) should you choose, taking all the above criteria into consideration, if the cost
of capital is equal to 12% per year?

[a] A
[b] B
[c] Both A and B
[d] Neither A nor B

Given the NPV, PI and IRR, we need to determine if we want to invest in Investment A or B. Now

Criteria Investment A Investment B

NPV 44 000 > 0 Accept −22 000 < 0 Decline
PI 1,945 > 1 Accept 0,071 < 1 Decline
IRR 16,00 > 12,00 Accept 8,04 < 12,00 Decline

We accept Investment A as the NPV is positive, the PI is greater than 1 and the IRR is greater than
the cost of capital.
[Option a]

Question 15
The following table represents the annual income (after tax) of an investment:

Years After-tax income

R
1 200 000
2 500 000
3 300 000
4 400 000
5 700 000
6 300 000

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 DSC1630/SOL04/1

If the average rate of return is 8,421%, then the original investment (rounded off to the nearest
thousand rand) was

[a] R40 000.

[b] R1 497 000.
[c] R2 400 000.
[d] R4 750 000.

This is an average rate of return problem as the average rate of return is given. The income or
cash inflows are given. First, we calculate the average of all the inflows. That means add them all
together and divide by the number of inflows. Secondly, you express the average calculated in the
first step as a ratio to the outflow, and solve the investment level:
Average after-tax income
ARR =
Investment level
(2 + 5 + 3 + 4 + 7 + 3) in hundred thousand ÷ 6
0,08421 =
Investment level
400 000
Investment level =
0,08421
= 4 750 029,69

The original investment, rounded to the nearest thousand of rands, is R4 750 000.

EL-738/F/FB HP10BII/HP10BII+
2ndF M-CLR 0 0 C ALL
Using normal keys Using normal keys
Calculate the average Calculate the average
200 000 + 500 000 + 300 000 200 000 + 500 000 + 300 000
+400 000 + 700 000 + 300 000 = +400 000 + 700 000 + 300 000 =
÷6 = ÷6 =
400 000 is displayed. Now divide by ARR 400 000 is displayed. Now divide by ARR
÷0.08421 = ÷0.08421 =
4 750 029.688. . . is displayed. 4 750 029.688. . . is displayed.

[Option d]

NOTE: YOU CAN FIND THE SUMMARY OF WHEN TO USE WHICH FORMULA AND A
COPY OF THE FORMULA SHEET AVAILABLE IN THE EXAMINATION, ON myUNISA
IN THE FOLDER "Formula Sheet and Day Table", UNDER ADDITIONAL RESOURCES.

26