ARE 171A
Finance Homework
2
Winter 2010
A. Havenner
Ten problems on two pages. Please show your setup equations explicitly, and box your answers.
State your interest rate answers with four significant digits
(e.g.,
.01234 for 1.234%), and your
dollars answers in dollars and cents
(e.g.,
$1,000,000.43 for a million dollars and 43 cents); carry
five nonzero digits in your calculations using small magnitudes.
[6]
1. What is the future value of $1,000 continuously compounded for six years and three months
at a stated annual rate of 8%?
[10]
2. You must decide whether or not to purchase new capital equipment. The cost of the new
machine is $5,000. The appropriate discount rate is 10%. The equipment will produce cash flows
of $700 at the end of year 1; $900 at the end of year 2; $1.000 at the end of each of years 3, 4, 5,
and 6; $1,250 at the end of year 7; and $1,375 at the end of year 8. Should you buy the machine?
3.
Maria wants to put $500,000 down seven years from now on a vineyard high in the
mountains of Chile. She has found an account that pays a stated annual rate of 5% interest com
pounded monthly into which she plans to make deposits beginning 30 days from now and continuing
every month for seven years. What must she deposit monthly?
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Winter '08
 WHITNEY
 Time Value Of Money, Mathematical finance

Click to edit the document details