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Unformatted text preview: CHAPTER 5 B-61 11. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = \$1,000,000 / (1.10) 80 = \$488.19 12. To find the FV of a lump sum, we use: FV = PV(1 + r ) t FV = \$50(1.045) 105 = \$5,083.71 13. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r ) t Solving for r , we get: r = (FV / PV) 1 / t – 1 r = (\$1,260,000 / \$150) 1/112 – 1 = .0840 or 8.40% To find the FV of the first prize, we use: FV = PV(1 + r ) t FV = \$1,260,000(1.0840) 33 = \$18,056,409.94 14. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r ) t Solving for r , we get: r = (FV / PV) 1 / t – 1 r = (\$43,125 / \$1) 1/113 – 1 = .0990 or 9.90% 15. To answer this question, we can use either the FV or the PV formula. Both will give the same answer To answer this question, we can use either the FV or the PV formula....
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