FIN 300- Quiz 3 Answers with Solutions

FIN 300- Quiz 3 Answers with Solutions - FIN 300...

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FIN 300 Time-Value-of-Money Practice Quiz - Solutions 1) 𝐹𝑉 𝑃𝑉 = (1 + 𝑖 ) 𝑛 𝐹𝑉 𝑃𝑉 = 7 and N=40 7= (1 + 𝑖 ) 40 7^(1/40)=1+ i i= 7^(1/40)-1=1.04985-1=0.04985=4.985% 2) FV=300 PV=100 I=3.6%/12=0.3%=0.003 𝐹𝑉 𝑃𝑉 = (1 + 𝑖 ) 𝑛 300/100=(1.003)^n ln(3)=n*ln(1.003) n=366.75 months/12mths/yr = 30.56 years 3) FV=100,000 I=5% N=20 𝑃𝑉 = 𝐹𝑉 ( 1+𝑖 ) 𝑛 PV=100,000/(1+0.05)^20=37688.95 4) PV=40,000 I=2.4%/12=0.2%=0.002 N= 6*12=72 40,000*2.4%/12=40,000*0.2%=40,000*0.002= \$80 interest payment Note: There is no need to calculate the payment in order to get the interest However, to get the principal portion – you first need to calc. the payment & then, you subtract the interest from the whole payment amount Plug in PV of ordinary annuity equation… PV of ordinary annuity= 𝑐 𝑖 1 1 ( 1+𝑖 ) 𝑛 40,000 = [C/0.002]{1-[1/(1.002^72)]} Solve for C = \$597.07 Principal portion of payment = C – interest = \$597.07-\$80=\$517.07 Subscribe to view the full document.

5) PV=300,000 I=4.8%/12=0.4%=0.004 N=12*15=180 PV of ordinary annuity= 𝑐 𝑖 1 1 ( 1+𝑖 ) 𝑛 300,000=(C/0.004){1-[1/(1.004^180)]} C=2341.243 6) I=6%/12=0.5%=0.005 N=24*12=288; originally a 30 year loan- but, 24 years remaining PMT=1000 PV of ordinary annuity= 𝑐 𝑖 1 1 ( 1+𝑖 ) 𝑛 PV=(1000/0.005)*{1-[1/(1.005^288)]} PV=152444.12 7)  Unformatted text preview: PV=10,000 PMT=300 PV of ordinary annuity= ° ± 1 − 1 ( 1+± ) ² ³ 10000=(300/0.015)*{1-[1/(1.015^n)]} 0.5 = 1 – [1/(1.015^n)] 1/(1.015^n)=1-0.5=0.5 2 = 1.015^n ln(2)=n*ln(1.015) n=ln2/ln1.015 n=46.56 months; 46.56/12=3.88 years 8) Hint: Two single lump sums; I = 10%=0.1 PV (at t=3)of both payments = PV (at t=3) of 4 th year’s cash flow + PV (at t=3) of 5 th year’s cash flow. Since we are finding the PV in the third year, we can discount the \$10,000 back one year and the \$110,000 back two years. PV=10,000/[(1+0.1)^1] + 110,000/[(1+0.1)^2]=\$100,000 9) N=37*12=444 I=9%/12=0.75%=0.0075 PMT=1000 FV= ´ ± {(1 + µ ) ¶ − 1} = FV of ordinary annuity since stated as end-of-mth payment FV=(1000/0.00750) {[(1+0.O075)^444]-1} FV= 3,545,779.215 10) EAR= 1 + °±² ³ ´ ³ − 1 1. EAR=(1+0.09/52)^52-1=9.4089% 2. 9.2%; EAR = APR, since m=1; everything is annual Loan rate #2 is the better offer. (we want to borrow at the lowest rate!) 11) FV=2M I=5%/12=0.4167%=0.004167 N=40*12=480 FV= µ ¶ {(1 + · ) ¸ − 1}(1+i) = FV of annuity due, since the payments are at the begin. of period 2,000,000=(C/0.004167){[(1.004167)^480]-1}(1.004167) C= 1305.02...
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