EA–9
a.
Dollar amount
=
$25,000
×
Future value factor for
i
= 10% and
n
= 4
=
$25,000
×
1.46410 (from Table 1)
=
$36,603
Dollar amount
=
$36,603
×
Future value factor for
i
= 12% and
n
= 3
=
$36,603
×
1.40493 (from Table 1)
=
$51,425
Dollar amount
=
$51,425
×
Future value factor for
i
= 15% and
n
= 5
=
$51,425
×
2.01136 (from Table 1)
=
$103,434
b.
Ben should not accept $36,000 for $25,000 at the end of 4 years. Why not? Because if he
invests the initial $25,000 at 10 percent per annum compounded annually, he will have a total
of $36,603, $603 more than the amount the person offered him.
EA–10
a.
Dollar amount
=
($40,000
×
Present value factor for an ordinary annuity factor for
i
= 10% and
n
= 10) + ($500,000
×
Present value factor for
i
= 10% and
n
= 10)
=
($40,000
×
6.14457 from Table 5) + ($500,000
×
.38554 from Table 4)
=
$245,782.80 + $192,770.00
=
$438,552.80
b.
There are two different ways to calculate the dollar amount.
The two ways are shown below.
Dollar amount
=
($40,000
×
Present value factor for an annuity due for
i
= 10% and
n
= 10)
+ ($500,000
×
Present value factor for
i
= 10% and
n
= 10)
=
($40,000
×
6.75902 from Table 6) + ($500,000
×
.38554 from Table 4)
=
$270,360.80 + $192,770.00
=
$463,130.80
Dollar amount
=
$40,000 + ($40,000
×
Present value factor for an ordinary annuity factor
for
i
= 10% and
n
= 9) + ($500,000
×
Present value factor for
i
= 10% and
n
= 10)
=
$40,000 + ($40,000
×
5.75902 from Table 5) + ($500,000
×
.38554 from Table 4)
=
$40,000 + $230,360.80 + $192,770.00
=
$463,130.80
4