ARE
171A
Finance Homework 1
Winter
2010
A.
Havenner
Ten problems on two pages. Show your work. Box your answers prominently.
Problems:
1.
Compute the present value
of
a.
$174,312 paid 3 years from now discounted at 3% annually
b.
$234,073 paid
11
years from now discounted at 3.58% annually
2.
Compute the future value
of
$10,000 compounded annually for
a.
5 years at 7%
b.
10
years at 7%
c.
20 years at 7%
3.
Table A.3 in the text gives the future value
of
$1
at the end
of
T periods,
(1
+
r)T.
It
is
often
convenient to know how long it takes to double the value at a given rate, or what rate is required
to double the value in a given time. There
is
a famous approximation that says the value will double
when the rate times the time (in years)
is
x.
What
is
x?
4.
Georgi
G.
is
considering the purchase
of
a local bank in receivership. He thinks he can resurrect
it if he puts $100,000 per year in at the end
of
each
of
the first 5 years.
He plans to sell it for
$1,000,000 at the end
of
the sixth year. The market interest rate is
11
% for assets
of
comparable
risk, which
is
the same as Georgi's discount rate.
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 Winter '08
 WHITNEY
 Time Value Of Money, Mathematical finance, Georgi G.

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