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FIN CHAP 06 SOL _1-_8

# FIN CHAP 06 SOL _1-_8 - CHAPTER 6 6-1 FUTURE VALUE If you...

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CHAPTER 6 6-1 FUTURE VALUE If you deposit \$10,000 in a bank account that pays 10 percent interest annually, HOW MUCH MONEY WILL BE IN YOUR ACCOUNT AFTER 5 YEARS? 0 10% 1 2 3 4 5 PV = 10,000 FV 5 = ? FV 5 = \$10,000(1.10) 5 = \$10,000(1.61051) = \$16,105.10. Alternatively, with a financial calculator enter the following: N = 5 I = 10 PV = -1000 and PMT = 0. Solve for FV = \$16,105.10.

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6-2 PRESENT VALUE WHAT IS THE PRESENT VALUE OF A SECURITY THAT PROMISES TO PAY YOU \$5,000 IN 20 YEARS? ASSUME THAT YOU CAN EARN 7 PERCENT IF YOU WERE TO INVEST IN OTHER SECURITIES OF EQUAL RISK. 0 7% 5 10 15 20 PV = ? FV 20 = 5,000 With a financial calculator enter the following: N = 20, I = 7, PMT = 0, and FV = 5000. Solve for PV = \$1,292.10.
6-3 TIME FOR A LUMP SUM TO DOUBLE If you deposit money today into an account that pays 6.5 percent interest, HOW LONG WILL IT TAKE FOR YOU TO DOUBLE YOUR MONEY? 0 6.5% n = ? PV = 1 FV n = 2 2 = 1(1.065) n . With a financial calculator enter the following: I = 6.5, PV = -1, PMT = 0, and FV = 2. Solve for N = 11.01 11 years.

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6-4 REACHING A FINANCIAL GOAL John Roberts has \$42,180.53 in a brokerage account, and he plans to contribute an additional \$5,000 to the account at the end of every year.
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