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
B59
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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 Spring '08
 WILSON
 Finance, Time Value Of Money, Valuation, $ 43,516.90, $687,764.17, $ 14,999.39, $ 21,914.85, $315,795.75

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