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hw_ch05_1

# hw_ch05_1 - CHAPTER 5 INTRODUCTION TO VALUATION THE TIME...

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CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY 57 Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem. Basic 2. To find the FV of a lump sum, we use: FV = PV(1 + r ) t FV = \$2,250(1.10) 11 = \$ 6,419.51 FV = \$8,752(1.08) 7 = \$ 14,999.39 FV = \$76,355(1.17) 14 = \$687,764.17 FV = \$183,796(1.07) 8 = \$315,795.75 3. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = \$15,451 / (1.07) 6 = \$ 10,295.65 PV = \$51,557 / (1.13) 7 = \$ 21,914.85 PV = \$886,073 / (1.14) 23 = \$ 43,516.90 PV = \$550,164 / (1.09) 18 = \$116,631.32

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CHAPTER 5 B-59 4. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r ) t Solving for r , we get: r = (FV / PV) 1 / t – 1 FV = \$297 = \$240(1 + r ) 2 ; r = (\$297 / \$240) 1/2 – 1 = 11.24% FV = \$1,080 = \$360(1 + r ) 10 ; r = (\$1,080 / \$360) 1/10 – 1 = 11.61% FV = \$185,382 = \$39,000(1 + r ) 15 ; r = (\$185,382 / \$39,000)
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