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Chapter5 solution

# Chapter5 solution - Chapter5 solution Questions 5-2 True...

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Chapter5 solution Questions 5-2 True. The second series is an uneven cash flow stream, but it contains an annuity of \$400 for 8 years. The series could also be thought of as a \$100 annuity for 10 years plus an additional payment of \$100 in Year 2, plus additional payments of \$300 in Years 3 through 10. 5-3 True, because of compounding effects—growth on growth. The following example demonstrates the point. The annual growth rate is I in the following equation: \$1(1 + I) 10 = \$2. We can find I in the equation above as follows: Using a financial calculator input N = 10, PV = -1, PMT = 0, FV = 2, and I/YR = ? Solving for I/YR you obtain 7.18%. Viewed another way, if earnings had grown at the rate of 10% per year for 10 years, then EPS would have increased from \$1.00 to \$2.59, found as follows: Using a financial calculator, input N = 10, I/YR = 10, PV = -1, PMT = 0, and FV = ?. Solving for FV you obtain \$2.59. This formulation recognizes the “interest on interest” phenomenon. 5-4 For the same stated rate, daily compounding is best. You would earn more “interest on interest.” Problems 5-1 0 1 2 3 4 5 | | | | | | PV = 10,000 FV 5 = ? FV 5 = \$10,000(1.10) 5 = \$10,000(1.61051) = \$16,105.10. Alternatively, with a financial calculator enter the following: N = 5, I/YR = 10, PV = -10000, and PMT = 0. Solve for FV = \$16,105.10. 5-2 0 5 10 15 20 10% 7%

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| | | | | PV = ? FV 20 = 5,000 With a financial calculator enter the following: N = 20, I/YR = 7, PMT = 0, and FV = 5000. Solve for PV = \$1,292.10. 5-3 0 18 | | PV = 250,000 FV 18 = 1,000,000 With a financial calculator enter the following: N = 18, PV = -250000, PMT = 0, and FV = 1000000. Solve for I/YR = 8.01% ≈ 8%. 5-4 0 N = ? | | PV = 1 FV N = 2 \$2 = \$1(1.065) N . With a financial calculator enter the following: I/YR = 6.5, PV = -1, PMT = 0, and FV = 2. Solve for N = 11.01 ≈ 11 years. 5-5 0 1 2 N – 2 N – 1 N | | | | | | PV = 42,180.535,000 5,000 5,000 5,000 FV = 250,000 Using your financial calculator, enter the following data: I/YR = 12; PV = -42180.53; PMT = -5000; FV = 250000; N = ? Solve for N = 11. It will take 11 years to accumulate \$250,000. 5-6 Ordinary annuity: 0 1 2 3 4 5 | | | | | | 300 300 300 300 300 FVA 5 = ? With a financial calculator enter the following:  N = 5, I/YR = 7, PV = 0, and PMT = 300.  Solve for  FV = \$1,725.22. 6.5% 7% 12% I/YR = ?
Annuity due: 0 1 2 3 4 5 | | | | | | 300 300 300 300 300 With a financial calculator, switch to “BEG” and enter the following: N = 5, I/YR = 7, PV = 0, and PMT = 300. Solve for FV = \$1,845.99. Don’t forget to switch back to “END” mode. 5-7 0 1 2 3 4 5 6 | | | | | | | 100 100 100 200 300 500 PV = ? FV = ? Using a financial calculator, enter the following: CF 0 = 0; CF 1 = 100; N j = 3; CF 4 = 200 (Note calculator will show CF 2 on screen.); CF 5 = 300 (Note calculator will show CF 3 on screen.); CF 6 = 500 (Note calculator will show CF 4 on screen.); and I/YR = 8. Solve for NPV = \$923.98. To solve for the FV of the cash flow stream with a calculator that doesn’t have the NFV key, do the  following:  Enter N = 6, I/YR = 8, PV = -923.98, and PMT = 0.  Solve for FV = \$1,466.24.  You can  check this as follows: 0 1 2 3 4 5 6 | | | | | | | 100 100 100 200 300 500 324.00 233.28 125.97 136.05 146 .93 \$1,466 .23 5-8 Using a financial calculator, enter the following: N = 60, I/YR = 1, PV = -20000, and FV = 0. Solve for PMT = \$444.89.

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Chapter5 solution - Chapter5 solution Questions 5-2 True...

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