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Chapter_9_-_Moodle_Ready

Chapter_9_-_Moodle_Ready - Chapter 9 Problems 9-A You...

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Chapter 9 Problems 9-A. You invest $3,000 a year for three years at 12 percent. a . What is the value of your investment after one year? Multiply $3,000 × 1.12. b . What is the value of your investment after two years? Multiply your answer to part a by 1.12. c . What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer. d . Confirm that your final answer is correct by going to Appendix A (future value of $1), and looking up the future value for n = 3, and i = 12 percent. Multiply this tabular value by $3,000 and compare your answer to the answer in part c . There may be a slight difference due to rounding. 9-A. Solution: a. $3,000 × 1.12 = $3,360.00 b. $3,360 × 1.12 = $3,763.20 c. $3,763.20 × 1.12 = $4,214.78 d. $3,000 × 1.405 = $4,215.00 (Appendix A) S9-1
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9-B. If you invest $9,000 today, how much will you have: a . In 2 years at 9 percent? b . In 7 years at 12 percent? c . In 25 years at 14 percent? d . In 25 years at 14 percent (compounded semiannually)? 9-B. Solution: Appendix A FV = PV × FV IF a. $9,000 × 1.188 = $ 10,692 b. $9,000 × 2.211 = $ 19,899 c. $9,000 × 26.462 = $238,158 d. $9,000 × 29.457 = $265,113 (7%, 50 periods) S9-2
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9-C. You invest a single amount of $10,000 for 5 years at 10 percent. At the end of 5 years you take the proceeds and invest them for 12 years at 15 percent. How much will you have after 17 years? 9-C. Solution: Appendix A FV = PV × FV IF $10,000 × 1.611 = $16,110 Appendix A FV = PV × FV IF $16,110 × 5.350 = $86,188 S9-3
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9-D. Phil Goode will receive $175,000 in 50 years. His friends are very jealous of him. If the funds are discounted back at a rate of 14 percent, what is the present value of his future “pot of gold”? 9-D. Solution: Appendix B PV = FV × PV IF (14%, 50 periods) = $175,000 × .001 = $175 S9-4
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9-E. Al Rosen invests $25,000 in a mint condition 1952 Mickey Mantle Topps baseball card. He expects the card to increase in value 12 percent per year for the next 10 years. How much will his card be worth after 10 years? 9-E. Solution: Appendix A FV = PV × FV IF (12%, 10 periods) = $25,000 × 3.106 = $77,650 S9-5
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9-F. Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.) 9-F. Solution: Appendix B PV = FV IF Discount rate = 11% $ 2.00 × .901 = $ 1.80 2.20 × .802 = 1.79 2.40 × .731 = 1.75 33.00 × .731 = 24 .12 $29.46 S9-6
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9-G. How much would you have to invest today to receive: a . $15,000 in 8 years at 10 percent? b . $20,000 in 12 years at 13 percent? c . $6,000 each year for 10 years at 9 percent? d . $50,000 each year for 50 years at 7 percent? 9-G. Solution: Appendix B (a and b) PV = FV × PV IF a. $15,000 × .467 = $7,005 b. $20,000 × .231 = $4,620 Appendix D (c and d) c. $ 6,000 × 6.418 = $38,508 d. $50,000 × 13.801 = $690,050 S9-7
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9-H. Carrie Tune will receive $19,500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for $160,000?
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