Errors_in_Homework_F10(2)

Errors_in_Homework_F10(2) - Errors in Homework - Booth...

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- Fall 2010 nd If you find errors in the homework solutions, please just email me with the details and I will revise this file and let the whole class know. Chapter 5: #14 Solution is “C” not “B”. Calculation is correct, they just used the wrong letter to identify correct answer. The calculation is as follows: Remaining number of payments in the annuity: n=20*12-120 = 120 Monthly payments: PMT = $2,752.72 Interest rate = 12% APR compounded monthly, therefore effective monthly rate = 1%. Therefore k=1%. The outstanding balance is therefore: OB = PMT/k {1- [1 / (1+k) ]} = 2752 . 72 /. 01(1- [1/1.01 ]) = $191,866.02 n 20 #15 Both “A” and “D” are correct. #22. - Solution to part (B) appears garbled in PDF file. Solution is: 380 years B. FV = $24 x (1+0 . 05) = $2,704,860,602 . 74 380 #43 The solution calculates the present value of the annuity due and discounts it three periods. That is incorrect. Present value of a four year annuity due, starting four years from now will be at time t=4 and therefore to get the present value at time zero, it should be discounted 4 periods. 0 PV = FV[1 / (1+k) ] = $14,497 . 26 x [1 / (1 . 07) ] = $11,059 . 89 4 4 #44. Part (B) asks you to create an amortization schedule. You might find this useful to enhance your understanding of what an amortization schedule is. You do have to understand amortization. However, we will not be asking students to create amortization schedules on any quiz or exam. #60 A. Here is how you can solve using formula (without the financial calculator): 0 PV = FV/(1+k) 15,000 = 20,000/1.005 So 1.005 = 20,000/15,000 = 4/3 n n n taking log on both sides n x ln(1.005) = ln(4)-ln(3) n = [ln(4) - ln(3)]/ln(1.005) = 57 . 68 months or about 58 months correction to part B continues on next page. 1
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Errors_in_Homework_F10(2) - Errors in Homework - Booth...

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