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PSET.1.SOL.2016-2

# PSET.1.SOL.2016-2 - Solutions to C298 Practice Problem...

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Solutions to C298 Practice Problem Set #1 1. (a) FV = = 8,000+ 8000(.09)(4) = \$10,880 (b) FV = = 8,000 (1.09) 4 = \$11,292.65 (c) FV = = 8,000 = \$11,420.97 2. In 100 years with an interest rate of 10% FV = = \$13,780.61 and with an interest rate of 11% FV = = \$34,064.18 3. FV = 300(1+.08) + 400 (1+.08) 2 1 = 349.92 + 432.00 = \$781.92

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4. The present value of costs associated with painting wooden outside walls every five years are shown below. Note that the numerators represent the inflation adjusted cash flows needed to paint the house at different points in time whereas the denominators represent the appropriate discount factor needed to determine the present values of these cash flows. PV = 2,000 + 3,500 + = 2,000 + 3,500 + 4,684(1.10) + 6,268(1.10) + 8,388(1.10) + 11225(1.10) -5 -10 -15 -20 = 2,000 + 3,500 + 2,908.26 + 2,416.57 + 2,008.01 + 1,668.52 = \$14,501.36 Since the vinyl siding costs only \$13,000 today, it is the cheaper alternative.

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