2504c_midterm_exercises_soln_6th

2504c_midterm_exercises_soln_6th - BUSI 2504C - SOLUTIONS...

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Unformatted text preview: BUSI 2504C - SOLUTIONS TO SUGGESTED EXERCISES CHAPTERS 5, 6, 7 (6TH EDITION) Q5-2 PV N I/Y CPT FV 2,250 19 10 13,760.80 9,310 13 8 25,319.70 76,355 4 22 169,151.87 183,796 8 7 315,795.75 Q5-3 FV N I/Y CPT PV 15,451 6 5 11,529.77 51,557 9 11 20,154.91 886,073 23 16 29,169.95 550,164 18 19 24,024.09 Q5-4 FV PV N CPT I/Y 307 265 2 7.63% 896 360 9 10.66% 162,181 39,000 15 9.97% 483,500 46,523 30 8.12% Q5-5 FV PV I/Y CPT N 1,284 625 8 9.36 yrs 4,341 810 7 24.81 yrs 402,662 18,400 21 16.19 yrs 173,439 21,500 29 8.20 yrs Q5-6- 80 , 000 FV ; 18 N ; 15 , 000 PV ; CPT I/Y = 9.75% Q5-8- 28 , 835 FV ; 5 N ; 21 , 608 PV ; CPT I/Y = 5.94% Q5-10- 800 , 000 , 000 FV ; 20 N ; 9 . 5 I/Y ; CPT PV = 130,258,959.12 Q5-12- 50 PV ; 102 N ; 5 I/Y ; CPT FV = 7,249.01 1 Q5-14 350 , 000 FV ; 65 N ; 26 . 09 I/Y ; CPT PV =-0.10 Q5-16 ( a ) 100 FV ; 20 N ;- 29 . 19 PV ; CPT I/Y = 6.35% ( b ) 35 FV ; 1 N ;- 29 . 19 PV ; CPT I/Y = 19.90% ( c ) 100 FV ; 19 N ;- 35 PV ; CPT I/Y = 5.68% Q5-18- 2 , 000 PV ; 45 N ; 10 I/Y ; CPT FV = 145,780.97- 2 , 000 PV ; 35 N ; 10 I/Y ; CPT FV = 56,204.87 better to start investing while young... Q6-2 I/Y N PMT CPT PV 5 9-4,000 *** 28,431.29 *** 5 5-6,000 25,976.86 22 9-4,000 15,145.14 22 5-6,000 *** 17,181.84 *** PV of Cash flow X has a greater PV at a 5 percent interest rate, but a lower PV at a 22 percent interest rate. The reason is that X has greater total cash flows. At a lower interest rate, the total cash flow is more important since the cost of waiting (the interest rate) is not as great. At a higher interest rate, Y is more valuable since it has larger cash flows. At the higher interest rate, these bigger cash flows early are more important since the cost of waiting (the interest rate) is so much greater. Q6-4 N I/Y PMT CPT PV 15 10-3,600 27,381.89 40 10-3,600 35,204.58 75 10-3,600 35,971.70 To find the PV of a perpetuity, we use the equation: PV = C r = 3 , 600 . 10 = $36 , 000 . 00 2 Notice that as the length of the annuity payments increases, the present value of the annuity approaches the present value of the perpetuity. The present value of the 75 year annuity and the present value of the perpetuity imply that the value today of all perpetuity payments beyond 75 years is only $28.30. Q6-6- 80 , 000 PMT ; 8 N ; 8 . 2 I/Y ; CPT PV = 456,262.25 Q6-8 NOTE: answer 3,327.58 in textbook on page 812 is wrong....
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2504c_midterm_exercises_soln_6th - BUSI 2504C - SOLUTIONS...

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