{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

tut2solutions

# tut2solutions - FINS 5514 Week 2 Time Value of Money...

This preview shows pages 1–3. Sign up to view the full content.

1 FINS 5514 Week 2: Time Value of Money & Discounting Solutions 1.d Alpha Bank: \$1,000(1.04) 5 - \$1,000 = \$216.65 compound interest Beta Bank: \$1,000(.04)(5) = \$200.00 simple interest Interest on interest paid by Alpha Bank = \$216.65 - \$200.00 = \$16.65 2. a PV = \$10,000[1/(1.08) 10 ] = \$4,631.93 3. c \$3,200 = \$1,650(1.075) t 1.93939 = 1.075 t ln 1.93939 = t(ln 1.075) .66238 = .07232t t = 9.16 4. c FV = \$10,000(1.0825) 4 = \$13,731.30 5. a All else equal, the future value will increase as the period of time increases. 6. a \$10,000(1+r) 5 = \$25,000 1+ r = 1.2011244, r = 20.11% 7. a All else equal, the present value will increase as the rate of return decreases. 8. c FV = \$200(1.05) 4 + \$400(1.05) 3 + \$100(1.05) 1 = \$243.10 + \$463.05 + \$105.00 = \$811.15 9. b \$1,000(1+r) 15 = \$3,548.00 1+ r = 1.0880919, r = 8.81%

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document