Lecture 7
Answers to Problems
32.
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
39.
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
312.
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
321.
a.
$2,000 ÷ 0.075 = $26,666.67
b.
$2,000 ÷ (0.075 – 0.03) = $44,444.44
c.
As the amount of the scholarship will be increasing each year by 3%, more
money must be set aside today to fund the increase.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
327.
a.
Compounding Frequency:
FV
n
=
PV
x
(1 +
r
)
n
A.
FV
5
= $2,500
x
(1.03)
10
B.
FV
3
= $50,000
x
(1.02)
18
FV
5
= $2,500
x
(1.344)
FV
3
= $50,000
x
(1.428)
FV
5
= $3,360
FV
3
= $71,412
C.
FV
10
= $1,000
x
(1.05)
10
D.
FV
6
= $20,000
x
(1.04)
24
FV
10
= $1,000
x
(1.629)
FV
6
= $20,000
x
(2.563)
FV
10
= $1,629
FV
6
= $51,266
b.
Effective Annual Rate: EAR =
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '08
 roberts
 Annual Percentage Rate, Effective Interest Rate, $100.00, $6,590.54, $8,094.52

Click to edit the document details