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FinalExamXXSolutions

# FinalExamXXSolutions - 1.a.True 2.b.False 3.d.\$39,743 Step1...

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University of Houston C. T. Bauer College of Business Principles of Financial Management Final Exam XX: Solutions 1. a. True 2. b. False 3. d. \$39,743 Step 1: PVA 9  = = PMT * PVIFA i, n  = 70,000 * PVIFA .06, 30  = 963,538.18 30 N 6 I/Y -70,000 PMT CPT PV = 963,538.18 She needs \$963,538.18 in her account when she retires in 9 years. Step 2: She has \$300,000 now which will grow to \$506,843.69. FV = PV(1+i) n  = 300,000(1.06) 9  = 506,843.69 Step 3: She must save the difference: FVA 9  = 936,538.18 – 506,843.69 = 456,694.49 Step 4: FVA 9  = = PMT * FVIFA i, n  = 456,694.49 = PMT * FVIFA .06, 9  , so PMT = 39,742.58 Or, the Steps 2-4 can be solved in one step. Note the signs on CF’s must be correct. 9 N 6 I/Y -300,000 PV 963,538.18 FV CPT PMT = - 39,742.58 4. d. \$954 i/n = 9/12 = 0.75% (n)(m) = (3)(12) = 36 PVA = 30,000 = PMT*PVIFA i,n   so, PMT = 30,000/ PVIFA 0.75,36  = 30,000/31.4468=  \$953.99 Or, 36 N 0.75 I/Y -30,000 PV CPT PMT = 953.99

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5. c. the lump sum Find the PV of Option 1: 20 N 8 I/Y -1,000,000 PMT CPT PV = 9,818,147.41 PVAD = (PV)(1+i) = (9,818,147.41)(1.08) = \$10,603,599.20 PV of option 1 < PV of lump sum of \$10,800,000 so  choose the lump sum 6. a. True 7. a. 14.7% To calculate standard deviation, first calculate the mean. ^ n r =   (r i  )(p  i  ) = (20)(0.6) + (-10)(0.4) = 12 – 4 = 8%       i = 1                 n              ^               σ 2  =   [(r i  – r)  2   p  i ] = (20-8)  2  (0.6) + (-10-8)
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FinalExamXXSolutions - 1.a.True 2.b.False 3.d.\$39,743 Step1...

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