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February 24-2011

# February 24-2011 - PROBLEM 6-7(a Time diagram(alternative...

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Unformatted text preview: PROBLEM 6-7 (a) Time diagram (alternative one): i = ? \$600,000 \$80,000 \$80,000 \$80,000 \$80,000 \$80,000 0 1 2 10 11 12 n = 12 8.09%. PV = -600000 PMT = 80000 FV = 0 n = 12 i = ? Time diagram (alternative two): i = ? PV = \$600,000 FV = \$1,900,000 0 1 2 11 12 n = 12 10.08%. PV = -600000 PMT = 0 FV = 1900000 n = 12 i = ? Dubois should choose alternative two since it provides a higher rate of return. (b) Time diagram: i = ? (\$824,150 – \$200,000) PV – OA = R = \$624,150 \$76,952 \$76,952 \$76,952 \$76,952 0 1 8 9 10 n = 10 six-month periods 8.00%. PV = -624150 PMT = 76952 FV = 0 n = 10 i = ? i = 4%. The interest rate is 4% semiannually, or 8% annually. (c) Time diagram: i = 5% per six months PV = ? 800000 ? \$32,000 \$32,000 \$32,000 \$32,000 \$32,000 (\$800,000 X 8% X 6/12) 0 1 2 8 9 10 n = 10 six-month periods [(7 – 2) X 2] Present value (amount received on sale of note) = \$738,226.12 PV = ? PMT = 32000 FV = 800000 n = 10 i = 5% PROBLEM 6-7 (Continued) (d) Time diagram i = 2 1/2 % per quarter PV = FV \$200,000 1300000 12/31/10 12/31/11 12/31/19 12/31/20 n = 40 quarters Quarterly payments = \$11,319.87 PV = -200000 FV = 1300000 n = 40 i = 2.5% PROBLEM 7-9 (a) December 31, 2010 Cash........................................................................Cash....
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February 24-2011 - PROBLEM 6-7(a Time diagram(alternative...

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