Solutions to Web Appendix 2A

# Solutions to Web Appendix 2A - SolutionstoProblems...

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Web Appendix 2A Continuous Compounding and Discounting Solutions to Problems 2A-1 FV 15  = \$15,000e 0.06(15)  = \$36,894.05. 2A-2 PV = FV N /e IN  = \$200,000/e 0.09(7)  = \$200,000/1.8776= \$106,518.36. 2A-3 Daily compounding: FV 2  = PV(1 + 0.07/365) 365(2)  = \$1,000(1.15026) = \$1,150.26 Continuous compounding: FV 2  = PVe IN  = \$1,000e 0.069(2)  = \$1,000(1.14798) = \$1,147.98 Difference between accounts \$               2.28     2A-4 Determine the effective annual rates. a. 10.25% annually = 10.25%. b. 10.0% semiannually =  2 2 10 . 0 1 +  – 1.0 = 0.1025 = 10.25%. c. 9.8% continuously = e 0.098  – 1.0 = 0.10296 = 10.30%. 2A-5 (Constant e = 2.7183 rounded.) \$11,572.28 = PVe 0.09(15) \$11,572.28 = PVe 1.35 PV = \$11,572.28/e 1.35 = \$11,572.28/3.85743 = \$3,000. Appendix 2A  Continuous Compounding and Discounting Answers and Solutions 1

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2 Answers and Solutions Appendix 2A  Continuous Compounding and Discounting
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Solutions to Web Appendix 2A - SolutionstoProblems...

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