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Ch. 5 Time Value of Money

# Ch. 5 Time Value of Money - TimeValueofMoney...

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Chapter 5 Time Value of Money Solutions to End-of-Chapter Problems To solve for PV and FV, you can use  i. formula ii. PV or FV tables iii. Financial calculator. 2-1 0 1 2 3 4 5 | | | | | | PV = 10,000  FV 5  = ? By formula: FV 5 = \$10,000(1.10) 5 = \$10,000(1.61051) = \$16,105.10. By table: Go to the Future Value table in the appendix, “Future Value of \$1 at the end of the Periods”  We look across the period 5 row and interest rate of 10% column, we find future value interest factor  of 1.611. Thus, FV 5 =\$10,000*1.611=\$16,110 Alternatively, with a financial calculator enter the following: N = 5, I/YR = 10, PV = -10000, and PMT  = 0.  Solve for FV = \$16,105.10. 2-2 0 5 10 15 20 | | | | | PV = ? FV 20  = 5,000 By formula: PV 0 = \$5,000/(1.07) 20 =5000/3.8697=\$1,292.10 By table: Go to the Present Value table in the appendix, “Present value interest factor of \$1 per period at i% for  n periods, PVIF(i,n)”   Chapter 2:  Time Value of Money Integrated Case 1 10% 7%

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We look across the period 20 row and interest rate of 7% column, we find PV interest factor of 0.258.  Thus, PV 20 =\$5,000*0.258=\$1,292.10 Or with a financial calculator enter the following:  N = 20, I/YR = 7, PMT = 0, and FV = 5000.  Solve  for PV = \$1,292.10. 2-3 0 18 | | PV = 250,000 FV 18  = 1,000,000 FV 18 = \$250,000(1+I) 18 1,000,000= \$250,000(1+I) 18 (1+I) 18 = 1,000,000/\$250,000 (1+I) 18 = 4 (1+I)=   4 (1/18)  =1.08006 I=.08 By Table:
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