Chapter 5
The Time Value of Money
5-1
Home Work 1 Solutions
1.
b. FV
5
= $1,000(FVIF
.06,5
) = $1,000(1.338) =
$1,338
2.
a. Present value of $5,000 today =
$5,000
b. Present value of $15,000 received in 5 years at 9%:
PV
0
= $15,000(PVIF
.09,5
) = $15,000 (0.650) =
$9,750 (tables)
$9749 (calculator)
c. Present value of a 15 year, $1,000 annuity at 9%:
PVAN
0
= $1,000 (PVIFA
.09,15
) = $1,000(8.061) =
$8,061
Therefore, you prefer $15,000 in five years because it has the
highest present
value.
4.
Alternative a:
PVAND
0
= $1,200(PVIFA
.08,12
)(1 + 0.08) = $1,200(7.536)(1.08)
=
$9,766.66 (tables);
$9,766.76 (calculator)
Alternative b:
Present value cost equals
$10,000
(given).
Therefore, choose Alternative 1
because it has a lower present value cost.
5.
b.
PV
0
= $50,000 [1 + (0.06/4)]
4x5
=
$37,123.52 (calculator)
7.
b. PV
0
= $800(0.540) =
$432
10.
$600,000 = PMT(FVIFA
.09,25
) = PMT(84.701)
PMT =
$7,083.74 (tables);
$7,083.75 (calculator)