Homework 3

# Homework 3 - a \$100 investment to grow to \$200 at 12...

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• tomislav33
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a) \$100 investment to grow to \$200 at 12% interest rate =6.12 years \$100 investment to grow to \$200 at 6% interest rate =11.9 years

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a) Future value of single cash flow Single cash flow Interest rate deposit years \$1500 7% 3 \$1500 7% 6 \$1500 7% 9 b) Amount of interest earned Years Amount invested Amount received 0 to 3 \$1500 \$1837.56 3 to 6 \$1837.56 \$2251.1 6 to 9 \$2251.10 \$2757.69 c) Since the earned interest every year is added towards the starting capital of the f
Future value \$1837.56 \$2251.10 \$2757.69 Interest earned \$337.56 \$413.54 \$506.59 folllowing year, interest increases yearly.

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a) PV = \$6000 / (1+0.12)^6 =\$3,039.78 b) PV = \$6000 / (1+0.12)^6 =\$3,039.78 c) PV = \$6000 / (1+0.12)^6 =\$3,039.78 d) All three scenarios use the same numbers and hence can be used for the exact sa
ame calculation .

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a) PV = \$500 / (1+0.07)^3 =\$408.16 b) The present value of \$500 receivable after 3 years if annually compounded is \$40

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Unformatted text preview: c) If Jim can purchase the investment for less than \$408.16, he should make the inv 08.16 vestment. a) PV30 = (\$20,000 / 0.11) x (1-1/(1+0.11)^30) =\$173,875.85 b) PV= \$173,875.85 / (1+0.09)^20 =\$31,024.82 c) An increase in interest during and prior to reTrement will cause a reducTon of va d) PV30 = (\$20,000 / 0.1) x (1-1/(1+0.1)^30) =\$188,538.28 alue of the investments calculated. a) Present value of mixed stream Interest rate per year 12% 1 2 3 4 5 Present Value Cash fow (\$2000) \$3000 \$4000 \$6000 \$8000 \$11,805.51 a) FV = \$5,000 x (1+0.12)^5 =\$8811,70 b) FV = \$5,000 x (1+0.16)^6 =\$12191,98 c) FV = \$5,000 x (1+0.2)^10 =\$30958,68 a) CF = \$220,000 / ((1+0.08)^42-1)/0.08) =\$723,10 b) FV = \$600/ ((1+0.08)^42-1)/0.08) =\$182,546.11...
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