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Bus361 Solutions to the suggested problems of Chapter 2

Bus361 Solutions to the suggested problems of Chapter 2 -...

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Chapter 2 Time Value of Money Solutions to End-of-Chapter Problems 2-1 0 1 2 3 4 5 | | | | | | PV = 10,000  FV 5  = ? FV 5 = $10,000(1.10) 5 = $10,000(1.61051) = $16,105.10. Alternatively, with a financial calculator enter the following: N = 5, I/YR = 10, PV = -10000,  and PMT = 0.  Solve for FV = $16,105.10. 2-2 0 5 10 15 20 | | | | | PV = ? FV 20  = 5,000 With a financial calculator enter the following:  N = 20, I/YR = 7, PMT = 0, and FV = 5000.  Solve for PV = $1,292.10. 2-3 0 18 | | PV = 250,000 FV 18  = 1,000,000 With a financial calculator enter the following:  N = 18, PV = -250000, PMT = 0, and FV =  1000000.  Solve for I/YR = 8.01%   8%. 2-4 0 N = ? | | PV = 1   FV N  = 2 $2 = $1(1.065) N . With a financial calculator enter the following:  I/YR = 6.5, PV = -1, PMT = 0, and FV = 2.  Solve for N = 11.01   11 years. 10% 7% 6.5% I/YR = ?
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2-5 0 1 2 N – 2 N – 1 N | | |         | | | PV = 42,180.53 5,000 5,000 5,000 5,000 FV =  250,000 Using your financial calculator, enter the following data:  I/YR = 12; PV = -42180.53; PMT =  -5000; FV = 250000; N = ?  Solve for N = 11.  It will take 11 years to accumulate $250,000. 12%
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2-6 Ordinary annuity: 0 1 2 3 4 5 | | | | | | 300 300 300 300 300 FVA 5  = ? With a financial calculator enter the following:  N = 5, I/YR = 7, PV = 0, and PMT = 300.  Solve  for FV = $1,725.22. Annuity due: 0 1 2 3 4 5 | | | | | | 300 300 300 300 300 With a financial calculator, switch to “BEG” and enter the following:  N = 5, I/YR = 7, PV = 0,  and PMT = 300.  Solve for FV = $1,845.99.  Don’t forget to switch back to “END” mode. 2-7 0 1 2 3 4 5 6 | | | | | | | 100 100 100 200 300 500 PV = ? FV = ? Using a financial calculator, enter the following:  CF 0  = 0; CF 1  = 100; N j  = 3; CF 4  = 200  (Note calculator will show CF 2  on screen.); CF 5  = 300 (Note calculator will show CF 3  on  screen.); CF 6  = 500 (Note calculator will show CF 4  on screen.); and I/YR = 8.  Solve for  NPV = $923.98. To solve for the FV of the cash flow stream with a calculator that doesn’t have the NFV key, do  the following:  Enter N = 6, I/YR = 8, PV = -923.98, and PMT = 0.  Solve for FV = $1,466.24.  You can check this as follows: 0 1 2 3 4 5 6 | | | | | | | 100 100 100 200 300 500 324.00 233.28 125.97 136.05     146     .93     $1,466     .23     2-8 Using a financial calculator, enter the following:  N = 60, I/YR = 1, PV = -20000, and FV = 0.  Solve for PMT = $444.89. 7% 8% 8% 7% ×  (1.08) ×  (1.08) 2 ×  (1.08) 3 ×  (1.08) 4 ×  (1.08) 5
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EAR =  M NOM M I 1 +   – 1.0 = (1.01) 12  – 1.0 = 12.68%. Alternatively, using a financial calculator, enter the following:   NOM% = 12 and P/YR = 12.  Solve for EFF% = 12.6825%.  Remember to change back to P/YR = 1 on your calculator.
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