ARE 171A
Finance Homework 1
Winter 2010
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
PV=
~
=
159520.17
1.03
3
b. $234,073 paid 11 years from now discounted at 3.58% annually
PV 234073
=
158970.43
1.0358
11
2. Compute the future value
of $1 0,000 compounded annually for
a. 5 years at 7%
FV=10,OOO(1.07)5
=
14025.52
b. 10 years at 7%
FV=10,OOO(1.07)10
=
19671.51
c. 20 years at 7%
A. Havenner
FV=10,000(1.07)20
=
38696.84
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?
Rule
of 72 applies to the discrete case like this problem as a useful rule
of thumb in handy.
Rule
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 Spring '10
 ArthurHavenner
 Time Value Of Money, Mathematical finance, comparable risk, Georgi G.

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