Practice Problem Solutions for Chapter 5 Part 1.pdf

Practice Problem Solutions for Chapter 5 Part 1.pdf -...

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Solutions to Some Practice Problems for Chapter 5 (1-7,9-21,23-24, 26, 30, 31) 5-1 0 1 2 3 4 5 | | | | | | PV = 2,000 FV 5 = ? FV 5 = $2,000(1.06) 5 = $2,000(1.338226) = $2,676.45. Alternatively, with a financial calculator enter the following: N = 5, I/YR = 6, PV = -2000, and PMT = 0. Solve for FV = $2,676.45. 5-2 0 5 10 15 20 | | | | | PV = ? FV 20 = 29,000 PV 5 = $29,000/(1.05) 20 = $29,000/2.6532977 = $10,929.80. With a financial calculator enter the following: N = 20, I/YR = 5, PMT = 0, and FV = 29000. Solve for PV = $10,929.80. 5-3 0 19 | | PV = 350,000 FV 19 = 800,000 With a financial calculator enter the following: N = 19, PV = -350000, PMT = 0, and FV = 800000. Solve for I/YR = 4.4470% 4.45%. 5-4 0 N = ? | | PV = 1 FV N = 2 $2 = $1(1.04) N . With a financial calculator enter the following: I/YR = 4.0, PV = -1, PMT = 0, and FV = 2. Solve for N = 17.67 years. 5-5 0 1 2 N – 2 N – 1 N | | | | | | PV = 33,556.25 5,000 5,000 5,000 5,000 FV = 220,000 Using your financial calculator, enter the following data: I/YR = 12; PV = -33556.25; PMT = -5000; FV = 220000; N = ? Solve for N = 11. It will take 11 years to accumulate $220,000. 6% 5% I/YR = ? 4.0% 12%
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5-6 Ordinary annuity: 0 1 2 3 4 5 | | | | | | 800 800 800 800 800 FVA 5 = ? With a financial calculator enter the following: N = 5, I/YR = 5, PV = 0, and PMT = 800. Solve for FV = $4,420.51. Annuity due: 0 1 2 3 4 5 | | | | | | 800 800 800 800 800 With a financial calculator, switch to “BEG” and enter the following: N = 5, I/YR = 5, PV = 0, and PMT = 800. Solve for FV = $4,641.53. Don’t forget to switch back to “END” mode. 5-7 0 1 2 3 4 5 6 | | | | | | | 150 150 150 250 300 500 PV = ? FV = ? Using a financial calculator, enter the following: CF 0 = 0; CF 1 = 300; N j = 3; CF 4 = 250 (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 = 11. Solve for NPV = $976.60. 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 = 11, PV = -976.60, and PMT = 0. Solve for FV = $1,826.64. You can check this as follows: 0 1 2 3 4 5 6 | | | | | | | 150 150 150 250 300 500 333.00 308.03 205.14 227.71 252.76 $1,826.64 5-9 a. 0 1 | | $600(1.06) = $636.00. -600 FV = ? Using a financial calculator, enter N = 1, I/YR = 6, PV = -600, PMT = 0, and FV = ? Solve for FV = $636.00. b. 0 1 2 | | | $600(1.06) 2 = $674.16. -600 FV = ? Using a financial calculator, enter N = 2, I/YR = 6, PV = -600, PMT = 0, and FV = ? Solve for FV = $674.16. 5% 5% 11% 11% × (1.11) × (1.11) 2 × (1.11) 3 × (1.11) 4 × (1.11) 5 6% 6%
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c. 0 1 | | $600(1/1.06) = $566.04. PV = ? 600 Using a financial calculator, enter N = 1, I/YR = 6, PMT = 0, and FV = 600, and PV = ? Solve for PV = $566.04. d. 0 1 2 | | | $600(1/1.06) 2 = $534.00. PV = ? 600 Using a financial calculator, enter N = 2, I/YR = 6, PMT = 0, FV = 600, and PV = ? Solve for PV = $534.00. 5-10 a. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | $200(1.04) 10 = $296.05. -200 FV = ? Using a financial calculator, enter N = 10, I/YR = 4, PV = -200, PMT = 0, and FV = ? Solve for FV = $296.05. b. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | $200(1.08) 10 = $431.78. -200 FV = ? Using a financial calculator, enter N = 10, I/YR = 8, PV = -200, PMT = 0, and FV = ? Solve for FV = $431.78. c. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | $200/(1.04) 10 = $135.11. PV = ? 200 Using a financial calculator, enter N = 10, I/YR = 4, PMT = 0, FV = 200, and PV = ? Solve for PV = $135.11. 6% 6% 4% 8% 4%
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d. 0 1 2 3 4 5 6 7 8 9 10 | | | | | | | | | | | PV = ? 1,870.00 $1,870.0/(1.08) 10 = $866.17. Using a financial calculator, enter N = 10, I/YR = 8, PMT = 0, FV = 1870.00, and PV = ? Solve for PV = $866.17. $1,870.00/(1.04) 10 = $1,263.30. Using a financial calculator, enter N = 10, I/YR = 4, PMT = 0, FV = 1870.00, and PV = ? Solve for PV = $1,263.30. e. The present value is the value today of a sum of money to be received in the future. For example, the value today of $1,870.00 to be received 10 years in the future is $866.17 at an interest rate of 8%, but it is $1,263.30 if the interest rate is 4%. Therefore, if you had $866.17 today and invested it at 8%, you would end up with $1,870.00 in 10 years. The present value
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