Ch 5 Web Appendix 5A Solutions

Ch 5 Web Appendix 5A Solutions - 0.095 – 1.0 = 0.0997 =...

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Web Appendix 5A Continuous Compounding and Discounting Solutions to Problems 5A-1 FV 15  = \$15,000e 0.06(15)  = \$36,894.05. 5A-2 PV = FV N /e IN  = \$200,000/e 0.09(7)  = \$200,000/1.8776= \$106,518.36. 5A-3 Daily compounding: FV 2  = PV(1 + 0.07/365) 365(2)  = \$1,000(1.15026) = \$1,150.26 Continuous compounding: FV 2  = PVe IN  = \$1,000e 0.069(2)  = \$1,000(1.14798) = \$1,147.98 Difference between accounts \$               2.28     5A-4 Calculate the growth factor using PV and FV which are given: FV N = PVe IN ; \$40,000 = \$20,000e I6 e I6 = 2.0. Take the natural logarithm of both sides: I(6)ln e = ln 2.00. The natural log of e = 1.0. Inputs:  2.0.  Press LN key.  Output:  LN = 0.6931. I(6)ln e = ln 2.0 I(6) = 0.6931 I = 0.1155 = 11.55%. 5A-5 Determine the effective annual rates. a. 10.25% annually = 10.25%. Appendix 5A  Continuous Compounding and Discounting Answers and Solutions 1

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b. 10.0% semiannually =  2 2 10 . 0 1 +  – 1.0 = 0.1025 = 10.25%. c. 9.5% continuously = e
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Unformatted text preview: 0.095 – 1.0 = 0.0997 = 9.97%. 5A-6 (Constant e = 2.7183 rounded.) \$11,572.28 = PVe 0.09(15) \$11,572.28 = PVe 1.35 PV = \$11,572.28/e 1.35 = \$11,572.28/3.85743 = \$3,000. 5A-7 e (0.03)(10) = 20 NOM 2 I 1 + e 0.3 = 20 NOM 2 I 1 + e 0.3/20 = 1 + 2 I NOM 1.01511= 1 + 2 I NOM 2 I NOM = 0.01511 I NOM = 0.0302 = 3.02%. 5A-8 Step 1: Calculate the FV of the \$2,000 deposit at 8% with continuous compounding: Using e x key: Inputs: X = 0.24; press e x key. Output: e x = 1.27125. FV N = \$2,000e 0.08(3) = \$2,000(1.27125) = \$2,542.50. Step 2: Calculate the PV or initial deposit: Input the following data into your calculator: N = 6; I/YR = 4.5; PMT = 0; FV = 2542.50; and then solve for PV = \$1,952.37. 2 Answers and Solutions Appendix 5A Continuous Compounding and Discounting...
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This note was uploaded on 01/11/2012 for the course FIN 3403 taught by Professor Tapley during the Fall '06 term at University of Florida.

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Ch 5 Web Appendix 5A Solutions - 0.095 – 1.0 = 0.0997 =...

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