Chapter 5, Problem 27
To solve this problem, we must find the PV of each cash flow and add them. To
find the PV of a lump sum, we use:
PV = FV / (1 + r)
t
PV = $1,200 / 1.0840 + $1,100 / 1.0840
2
+ $800 / 1.0840
3
+ $600 /
1.0840
4
PV = $3,105.74
Calculator:
CLR
TVM
, 8.4%
I/Y
1
N
, $1,200
FV
,
CPT
PV
-> –$1,107.01
STO
0
2
N
, $1,100
FV
,
CPT
PV
-> –$936.13
STO
+
0
3
N
, $800
FV
,
CPT
PV
-> –$628.06
STO
+
0
4
N
, $600
FV
,
CPT
PV
-> –$434.54
STO
+
0
RCL
0
-> –$3,105.74
Chapter 5, Problem 31
Two different interest rates means the problem has to be split in two sections:
1. Introductory rate
CLR
TVM
$10,000
PV
2.1% / 12 (monthly compounding) = 0.175%
I/Y
6
N
CPT
FV
−
$10,105.46
2. Rip-off rate
+/-
PV
(assuming
−
$10,105.46 was still in the display)
17% / 12 (monthly compounding) = 1.4167%
I/Y
CPT
FV
−
$10,995.43
After one year you owe $10,995.43 and since you
ʼ
ve started out with $10,000,
you
ʼ
ve added the difference of $995.43 in interest charges.
Chapter 5, Problem 32