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Time Value of Money
Answer Key
FI 3300
Summer 2002
1.
B
 this describes an annuity; a perpetuity lasts forever, not a fixed period of time.
2.
A
3.
B
 this is essentially the same as 2. An increase in the number of compounding periods per year
will increase the effective interest rate and therefore decrease PV.
4.
A
 if the interest rate is 0, the PV of an annuity due = PV of ordinary annuity. As interest rate
increases, the difference between PV’s increases.
5.
D
 PV of ordinary annuity always less than PV of annuity due.
6.
A
7.
A
8.
A
9.
B
10. A
NOTE THAT THERE ARE NUMEROUS WAYS TO ANSWER MANY OF THE FOLLOWING
PROBLEMS. I SHOW AT LEAST ONE WAY FOR EACH QUESTION. MY WAY IS NOT
NECESSARILY THE BEST WAY, BUT IT IS A WAY TO SOLVE THE PROBLEM.
11. $4,415.93
PV = 662.39/.15
12. 4.729%
PV=1; FV=4; N=30; CPT I/Y (you can use any PV or FV as long as FV = 4xPV
13. 8.947%
PV=21400; N=48; PMT=532; CPT I/Y
14. $7,756.59
Set calculator to BGN mode. PMT=821.75; N=18; I/Y=9; CPT PV.
15. $10,753.75
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 Fall '11
 ToddStotnitch
 Time Value Of Money, Annuity, Compounding, Corporate Finance, Perpetuity

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