FINA215
Problem Solving
Fall 2009
2-1
Solutions to problems on chapter 2, pp. 57-59
3. a. FV = $5,000 (FVIF 6%/1, 5(1)) = $5,000 (1.338226) = $6,691.13
b.
FV = $5,000 (FVIF 8%/1, 5(1)) = $5,000 (1.469328) = $7,346.64
c.
FV = $5,000 (FVIF 10%/1, 5(1)) = $5,000 (1.610510) = $8,052.55
d.
FV = $5,000 (FVIF 10%/2, 5(2)) = $5,000 (1.628895) = $8,144.47
e.
FV = $5,000 (FVIF 10%/4, 5(4)) = $5,000 (1.638616) = $8,193.08
From these answers we see that the future values of a security investment increase as interest
rates increase. As rates rose from 6 percent to 8 percent, the (future) value of the security
investment rose $655.51 (from $6,691.13 to $7,346.). As interest rates rose from 8 percent to 10
percent, the value of the investment rose $705.91 (from $7,346.64 to $8,052.55). This is because
as interest rates increase, a stated amount of funds invested at the beginning of an investment
horizon accumulates to a larger amount at the end of the investment horizon.
. Also as interest
rates increase, the future values of the investment increase at an increasing rate. The rise in