CHAPTER 5 HOMEWORK

CHAPTER 5 HOMEWORK - CHAPTER 5 HOMEWORK EXCERSICES NAME CAO...

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CHAPTER 5: HOMEWORK EXCERSICES NAME: CAO THI NGOC ANH ID: 421 762 CLASS: VISK2010B SOLUTION Problem 4 (p.196) a. We have a formula : PV = FV n [PVF k,n ] And substitute what’s known, \$856 = \$1,122 [PVF 7,n ] PVF 7,n = \$856/ \$ 1,122 = 0.7629 n = 4 years (Table A-2 of Appendix A) b. First, we calculate the correct k. Because compounding is monthly k = k nom / 12 = 12%/12 = 1% We have a formula: PV = FV n [PVF k,n ] And substitute what’s known, \$450.00 = \$725.50 [PVF 1,n ] PVF 1,n = 0.6203 n = 48 months = 4years (Table A-2 of Appendix A) c. First, we calculate the correct k. Because compounding is quarterly k= k nom / 4 = 10% / 4 = 2.5 % We have a formula: PV = FV n [PVF k,n ] And substitute what’s known, \$5,000 = \$6,724.44 [PVF 2.5,n ] Page 1

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PVF 2.5,n = 0.7436 n = 12 quarters = 3 years (Table A-2 of Appendix A) Problem 7 (p. 196) a. A formula of the future value factor for k and n is : FVF k, n = (1 + k) n And, (1+k) a+b = (1+k) a (1+k) b Thus, we have a new formula: FVF k,a+b = [FVF k,a ] [FVF k,b ] ( 1) And, substitute what’s known on equation (1) FVF 3, 85 = [FVF 3, 60 ] [FVF 3,25 ] FVF 3, 85 = 5.8916 x 2.0938 = 12.3359 (*) (table A- 1) Then, substitute (*) in the formula: FV = PV [FVF 3,85 ] = \$ 11.50 x 12.3359 = \$141.863 per bond Thus, the present value of 50 bonds is: FV = \$ 141.863 x 50bonds =\$ 7,093.15 b. Using equation (1) to calculate : FVF 7, 85 = [FVF 7, 60 ] [FVF 7, 25 ] FVF 7, 85 = 57.9464 x 5.4274 = 314.50
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CHAPTER 5 HOMEWORK - CHAPTER 5 HOMEWORK EXCERSICES NAME CAO...

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