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PS1_Solution

# PS1_Solution - PS1_Solution(1 a 0 | 10 1 | 2 | 3 | 4 | 5 |...

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PS1_Solution (1) a. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | 400 400 400 400 400 400 400 400 400 400 FV = ? FV (Ordinary Annuity) =P* ( ( (1+i)^n ) -1 ) /i= 400*( ( (1+10%)^10 )-1) /10%= \$6,374.96. With a financial calculator, enter N = 10, I = 10, PV = 0, and PMT = 400. Then press the FV key to find FV = \$6,374.97. b. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | 400 400 400 400 400 400 400 400 400 400 FV = ? FV (Annuity Due) = FV (Ordinary Annuity)*(1+i) = \$6,374.97*(1+10%) = \$7,012.47. You could use a financial calculator here as well. Just set the calculator for beginning of period payment. (2) a. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | PV = ? 400 400 400 400 400 400 400 400 400 400 PV (OA) =P*[ ( 1-1/ ( (1+i)^n ) ) /i] = 400*[(1-1/((1+10%)^10))/10%] =\$2,457.83. You could also use a financial calculator as in part a. With a financial calculator, enter N = 10, I = 10, FV = 0, and PMT = 400. Then press the PV. b. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | 400 400 400 400 400 400 400 400 400 400 PV = ? PV (Annuity Due) = PV (Ordinary Annuity)*(1+i) = \$2,457.83*(1+10%) = \$2,703.62. You could use a financial calculator here as well. Just set the calculator for beginning of period payment. (3) a. Universal Bank: Effective rate = 7%. 10% 10% 10% 10%

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Regional Bank: Effective rate= 4 4 06 . 0 1 + - 1.0 = (1.015)4 – 1.0 = 1.0614 – 1.0 = 0.0614 = 6.14%. With a financial calculator, you can use the interest rate conversion feature to obtain the
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PS1_Solution - PS1_Solution(1 a 0 | 10 1 | 2 | 3 | 4 | 5 |...

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