BA 350 - 1. The Lexington Property Development Company has...

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1. The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years . How much is the note worth today if the interest rate is a. 9%? b. 12% compounded monthly? c. 8% compounded quarterly? d. 18% compounded monthly? e. 7% compounded continuously? SOLUTION: PV = FV [PVF k,n ] a. PV = $10,000 [PVF 9,3 ] = $10,000 (.7722) = $7,722 b. PV = $10,000 [PVF 1,36 ] = $10,000 (.6989) = $6,989 c. PV = $10,000 [PVF 2,12 ] = $10,000 (.7885) = $7,885 d. PV = $10,000 [PVF 1.5,36 ] = $10,000 (.5851) = $5,851 e. FV = PV (e kn ) $10,000 = PV [e .07(3) ] $10,000 = PV [1.2337] PV = $8,105.70 Future Value of an Amount – Example 6.1 (page 246) 2. What will a deposit of $4,500 left in the bank be worth under the following conditions: a. Left for nine years at 7% interest? b. Left for six years at 10% compounded semiannually? c. Left for five years at 8% compounded quarterly? d. Left for 10 years at 12% compounded monthly? SOLUTION: FV = PV [FVF k,n ) a. FV = $4,500 [FVF 7,9 ] = $4,500 (1.8385) = $8,273.25 b. FV = $4,500 [FVF 5,12 ] = $4,500 (1.7959) = $8,081.55 c. FV = $4,500 [FVF 2,20 ] = $4,500 (1.4859) = $6,686.55 d. FV = $4,500 [FVF 1,120 ] = $4,500 (3.3004) = $14,851.80 Finding the Interest Rate – Example 6.3, (page 250) 3. What interest rates are implied by the following lending arrangements? a. You borrow $500 and repay $555 in one year. b. You lend $1,850 and are repaid $2,078.66 in two years.
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c. You lend $750 and are repaid $1,114.46 in five years with quarterly compounding. d. You borrow $12,500 and repay $21,364.24 in three years under monthly compounding. (Note: In c and d, be sure to give your answer as the annual nominal rate.) SOLUTION: FV = PV [FVF k,n ] a. $555 = $500 [FVF k,1 ] FVF k,1 = 1.1100 k = 11% b. $2,078.66 = $1,850.00 [FVF k,2 ] FVF k,2 = 1.1236 k = 6% c. $1,114.46 = $750.00 [FVF k,20 ] FVF k,20 = 1.4859 k = 2% k nom = 8% d. $21,364.24 = $12,500.00 [FVF k,36 ] FVF k,36 = 1.7091 k = 1.5% k nom = 18% Solving for the Number of Periods – Example 6.4 (page 251) 4. How long does it take for the following to happen? a. $856 grows into $1,122 at 7%. b. $450 grows into $725.50 at 12% compounded monthly. c. $5,000 grows into $6724.44 at 10% compounded quarterly.
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BA 350 - 1. The Lexington Property Development Company has...

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