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Unformatted text preview: Winter 2008 ADM 2350 SECTIONS P & Q Prof. W. Rentz FINANCIAL MANAGEMENT Assignment #1 Solutions GENERAL INSTRUCTIONS: This assignment is due at the beginning of the lab on Wed., January 23 for Section P and Mon., Jan. 21 for Section Q. It is your responsibility to hand in your assign ment directly to the tutor for lab associated with the section in which you are registered. Please do not hand in your assignment in the wrong lab or to the professor. This assignment counts 5% of your course grade. You are encouraged to work on this assignment in teams of up to 5 students from the same section of this course . However, you may turn in an individual assignment if you prefer. Each assignment must be typed and contain the student name(s) and student number(s) on each page. A statement of integrity must be attached to each assignment (See page 8 of the course syllabus). Each individual whose name appears on the assignment must sign the statement of integrity. 1. Assume that your father is now age fifty and plans an early retirement at age fiftyeight. He will be able to save $10,000 per year at the END of the next four years, while he puts you through business school. Then he will save $20,000 per year at the END of the next four years. In addition, he currently has $300,000 invested in undeveloped real estate. a. If his annual savings over the next eight years are deposited in a savings account that pays six percent compounded annually and the value of the real estate appreciates at the rate of ten percent per year, how much wealth will your father have on retirement? Tabular Approach 900 , 785 $ 200 , 643 $ 500 , 87 $ 210 , 55 $ 144 . 2 000 , 300 $ 375 . 4 000 , 20 $ 262 . 1 375 . 4 000 , 10 $ 000 , 300 $ 000 , 20 $ 000 , 10 $ 8 %, 10 4 %, 6 4 %, 6 4 %, 6 = + + = × + × + × × = × + × + × × FVIF FVIFA FVIF FVIFA NB. The first calculation is accurate to ± $10 or 4 significant digits because the interest factors have only 4 significant digits. The second calculation is also accurate to ± $10 with the nearest $10 being $500. Since the third calculation is only accurate to ± $100, the total has been rounded to the nearest $100. As we shall see below when we use a scientific calculator, the tabular answer is ± $100 after the exact answer is rounded to the nearest $100. Before rounding, the tabular answer is actually somewhat more than $100 from the exact answer. Another way of viewing your father’s savings is to say that he can save $10,000 per year for the next eight years and another $10,000 for the last 4 years. Your calculation then would be 900 , 785 $ 200 , 643 $ 750 , 43 $ 970 , 98 $ 144 . 2 000 , 300 $ 375 . 4 000 , 10 $ 897 . 9 000 , 10 $ 000 , 300 $ 000 , 10 $ 000 , 10 $ 8 %, 10 4 %, 6 8 %, 6 = + + = × + × + × = × + × + × FVIF FVIFA FVIFA www.gestion.uottawa.ca / www.management.uottawa.ca Scientific Calculator Approach With a scientific calculator, you can use formulas to calculate the interest factors to 8 decimal places....
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 Fall '11
 Ronda
 Calculation, financial calculator approach

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