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Unformatted text preview: 59a.1$500(1.06) = $530.00.500FV = ?Using a financial calculator, enter N = 1, I/YR = 6, PV = 500, PMT = 0, and FV = ? Solve for FV = $530.00.b.12$500(1.06)2 = $561.80.500FV = ?Using a financial calculator, enter N = 2, I/YR = 6, PV = 500, PMT = 0, and FV = ? Solve for FV = $561.80.c.1$500(1/1.06) = $471.70.PV = ?500Using a financial calculator, enter N = 1, I/YR = 6, PMT = 0, and FV = 500, and PV = ? Solve for PV = $471.70.d.12$500(1/1.06)2 = $445.00.PV = ?500Using a financial calculator, enter N = 2, I/YR = 6, PMT = 0, FV = 500, and PV = ? Solve for PV = $445.00.510a.12345678910$500(1.06)10 = $895.42.500FV = ?Using a financial calculator, enter N = 10, I/YR = 6, PV = 500, PMT = 0, and FV = ? Solve for FV = $895.42.b.12345678910$500(1.12)10 = $1,552.92.500FV = ?Using a financial calculator, enter N = 10, I/YR = 12, PV = 500, PMT = 0, and FV = ? Solve for FV = $1,552.92.c.12345678910$500/(1.06)10 = $279.20.PV = ?5006%6%6%6%6%6%12%Using a financial calculator, enter N = 10, I/YR = 6, PMT = 0, FV = 500, and PV = ? Solve for PV = $279.20.d.12345678910PV = ?1,552.90$1,552.90/(1.12)10 = $499.99.Using a financial calculator, enter N = 10, I/YR = 12, PMT = 0, FV = 1552.90, and PV = ? Solve for PV = $499.99.$1,552.90/(1.06)10 = $867.13.Using a financial calculator, enter N = 10, I/YR = 6, PMT = 0, FV = 1552.90, and PV = ? Solve for PV = $867.13.e.The present value is the value today of a sum of money to be received in the future. For example, the value today of $1,552.90 to be received 10 years in the future is about $500 at an interest rate of 12%, but it is approximately $867 if the interest rate is 6%. Therefore, if you had $500 today and invested it at 12%, you would end up with $1,552.90 in 10 years. The present value depends on the interest rate because the interest rate determines the amount of interest you forgo by not having the money today.511a.200520062007200820092010612 (in millions)With a calculator, enter N = 5, PV = 6, PMT = 0, FV = 12, and then solve for I/YR = 14.87%.b.The calculation described in the quotation fails to consider the compounding effect of interest. It can be demonstrated to be incorrect as follows:$6,000,000(1.20)5 = $6,000,000(2.48832) = $14,929,920,which is greater than $12 million. Thus, the annual growth rate is less than 20%; in fact, it is about 15%, as shown in Part a....
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This note was uploaded on 10/05/2011 for the course FIN 350 taught by Professor Chen during the Spring '07 term at S.F. State.
 Spring '07
 Chen

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