Answers to Problems
3-2.
Present Value:
PV = FV
n
x
(
29
+
n
r
1
1
or
FV
n
x
(PVF
r%, n
)
PV
=
$100
x
(1.08)
-6
PV
=
$100
x
(.6302)
PV
=
$63.02
3-9.
Investment A:
$2,750 x (1.06)
15
= $6,590.54
Investment B:
$900 x 1.09
5
=
$1,384.76
$1,000 x 1.09
4
=
$1,411.58
$1,200 x 1.09
3
=
$1,554.03
$1,500 x 1.09
2
=
$1,782.15
$1,800 x 1.09
1
=
$1,962.00
$8,094.52
Investment C:
$1,200 x [(1.10
10
– 1)/0.10] = $19,124.91
Investment D:
$19,124.91 x 1.10 = $21,037.40
3-12.
a.
End of
year (
t
)
Budget Shortfall
x
(1 + .08)
-t
=
Present
Value
1
$5,000
x
.925926
=
$4,630
2
4,000
x
.857339
=
3,429
3
6,000
x
.793832
=
4,763
4
10,000
x
.735030
=
7,350
5
3,000
x
.680583
=
2,042
$22,214
An initial deposit of $22,214 would be needed to fund the shortfall for the pattern
shown in the table.
b.
An increase in the earnings rate would reduce the amount calculated in part
a
.
Lecture 8
Answers to Problems
3-21.
a.
$2,000 ÷ 0.075 = $26,666.67
b.
$2,000 ÷ (0.075 – 0.03) = $44,444.44