3131_TVM_Examples_solutions[1]

3131_TVM_Examples_solutions[1] - 3131 Chapter 6 Examples...

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3131 Chapter 6 Examples - Solutions 1. $1000 is put on deposit today to earn 6% compounded annually. What is the value of this investment at the end of 8 years? Use the FV of a lump sum table factor of 1.59385 $1000 x 1.59385 = $1593.84 2. If you wish to be able to withdraw the sum of $8000 at the end of 12 years how much do you have to deposit today (assuming interest is compounded annually at 6%)? Use the PV of a lump sum table factor of .49697 time $8000 = $3975.76 3. If $400 is put in a savings account at the end of each year for 5 years, how much will you have at the end of 5 years (assuming 6% interest compounded annually)? This is an annuity since there are equal payments over the years. Use the FV of an annuity table since the payments are at the end of each year. 5.63709 x $400 = $2254.84 4. If $400 is put in a savings account at the beginning of each year for 5 years, how much will you have at the end of 5 years (assuming 6% interest compounded annually)? This is an annuity due. If you are using a calculator set it to begin mode. If you are using the tables take the regular FV of an annuity factor and multiply it by 1.06 for the extra year of compounding. 5.63709 x 1.06 = 5.9753154 times $400 = $2390.13 5. What dollar amount today is equivalent to receiving $1000 10 years from now using a 7% interest rate (compounded annually)?
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