are171a-homework-1-key.2

# are171a-homework-1-key.2 - Finance Homework 1 ARE 171A...

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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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are171a-homework-1-key.2 - Finance Homework 1 ARE 171A...

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