HW5_-_Solution_Manual - FINANCIAL MATHEMATICS SILABO...

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SILABO – GERENCIA EMPRESARIAL Universidad Iberoamericana UNIBE Due Date : March 31, 2011 Deliver hard copy at the beginning of class and send the electronic file through email. Note: In all the problems set the student must provide a clear mathematical argument for the response. Otherwise a partial credit will be given for correct answers. Book: Mathematics of Money (15 Exercises) Exercises 14.1 Exercises: 2, 6, 8, 10, 12, 15, 16 Exercises 14.2 Exercises: 4, 6, 8, 10, 12, 15, 16, 17 Page 1 of 6 FINANCIAL MATHEMATICS HOMEWORK 5: Solution Manual
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Exercises 14.1 2. $50,000 Lump Sum FV = PV(1+i)^n $50,000 = PV(1.15)^2 $50,000 = PV(1.3225) PV = $37,807.18 $8,500 per year PV = PMT a n|i PV = $8,500 (4.160419734) PV = $35,363.57 Since the $50,000 lump sum has the higher PV, we would prefer it. Compare this result to #1. 6. PV = PMT/i PV = $23,500/.065 PV = $361,538.46 8. PV = PMT/i PV = $350,000/.0725 PV = $4,827,586.21 Since the present value of the savings is larger than the $2,500,000 cost, it would be financially justified to make this investment assuming a 7.25% rate of return. (It is debatable, though, whether the new telecommunications equipment would really keep paying off indefinitely into the future. If we assume a 5 year life, or a 10 year life, or some other fixed limit, the calculation and hence the decision might change.) Page 2 of 6
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10. We assume a 8% - 5% = 3% rate. PV = PMT/i
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HW5_-_Solution_Manual - FINANCIAL MATHEMATICS SILABO...

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