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

**sections.**

*blurred***to view the full version.**

*Sign up*