FIN3300 Solution Ch5 (W 0623)

FIN3300 Solution Ch5 (W 0623) - Solution CHAPTER 5...

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Unformatted text preview: Solution CHAPTER 5 INTRODUCTION TO VALUATION: THE TIME VALUE OF MONEY Page 142 Questions: 8, 9, 10, 11, 12, 13, 14, 15 8. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r ) t Solving for r , we get: r = (FV / PV) 1 / t 1 r = ($314,600 / $200,300) 1/7 1 = .0666 or 6.66% 9. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r ) t Solving for t , we get: t = ln(FV / PV) / ln(1 + r ) t = ln ($170,000 / $40,000) / ln 1.053 = 28.02 years 10. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = $650,000,000 / (1.074) 20 = $155,893,400.13 11. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = $1,000,000 / (1.10) 80 = $488.19 12. To find the FV of a lump sum, we use: FV = PV(1 + r ) t FV = $50(1.045) 105 = $5,083.71 1 13.13....
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FIN3300 Solution Ch5 (W 0623) - Solution CHAPTER 5...

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