Kevin Wallace
Ch.6 Homework
P.184 #53
A.
PVA=$10,000 [[1-(1/1.11) ^5]=$36,958.97
PVA=$10,000 + 10,000 ([1-(1/1.11)4]/0.11)=$41,024.46
B.
FV= PV (1+r)t
=36,958.97 (1+.011)^5=62,278.01
=41,024.46 (1+0.11)^5=69,128.60
C.
Highest present value is PV of annuity due. Highest future value is FV
of annuity due. Yes because the value on money is greater if the sum
you get today in place of tomorrow, and in annuity due method we get
back the sum of the money one year earlier.
P.185 #57
Pre-retirement APR
EAR=0.10=[1+(APR/12)]^12-1
APR=12[(1.10)^1/12-1]=9.57%
Post-retirement APR
EAR=0.07=[1+)APR/12]^12-1
APR=12[(1.07)1/12-1]=6.79%
PPVA=$20,000{1-[1/(1+0.0679/12)^12
(25)
]}/(0.0679/12)=$2,885,496
PV=$900,000/[1+(0.0679/12)]^300=$165,824
At retirement he needs
$2,885,496+165,824.26=$3,051,320.71
He will need to save $2,500 per month for the next 10 years to be able to
purchase the cabin
FVA=$2,500[{[1+(0.0957/12]^12
(10)-
1}/(0.0957/12)]=$499,659
After purchasing cabin he will have this amount left: