This preview shows pages 1–4. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Chapter5 solution Questions 52 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. 53 True, because of compounding effectsgrowth 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. 54 For the same stated rate, daily compounding is best. You would earn more interest on interest. Problems 51 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. 52 5 10 15 20 10% 7%      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. 53 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%. 54 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. 55 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. 56 Ordinary annuity: 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: 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. Dont forget to switch back to END mode. 57 1 2 3 4 5 6        100 100 100 200 300 500 PV = ? FV = ? Using a financial calculator, enter the following: CF = 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....
View
Full
Document
 Spring '12
 Rhee
 Annuity, International Finance

Click to edit the document details