Chapter 10 Solution

# 229 same iy py cy 23 n 0 pmt 46891229 fv cpt pv ans

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 4377.66 FV CPT PV Ans: −7659.35 \$7659.35 The \$2000 annuity has the greater (by \$470.52) economic value. 62 Business Mathematics in Canada, 7/e Exercise 10.4 (continued) 13. The price paid will be the present value of the payments discounted at the required rate of return. Since the first payment is due in 6 months, the period of deferral is 5 months (in order to treat the payments as a deferred ordinary annuity). 18 I/Y P/Y 12 ENTER % Given: PMT = \$231, n = 15, d = 5, and i = 182 = (making C/Y = P/Y = 12) 1 1.5% 15 N 231 PMT 1 − (1 + i ) − n 0 FV PV(5 months from now) = PMT i CPT PV Ans: –3082.287 1 − 1.015 −15 = \$231 0.015 = \$3082.287 PV(today) = FV (1 + i ) − d = \$3082.29 (1.015 ) −5 = \$2861.16 The finance company will pay \$2861.16 for the contract. Same I/Y, P/Y, C/Y 5 N 0 PMT 3082.287 FV CPT PV Ans: −2861.16 15. The original loan equals the present value of the payments. Thus, PV = \$35,000 with PMT = \$1573.83, n = 4(12) = 48, and i = 10% = 2.5%. 4 At a focal date at the end of the period of deferral, FV of \$35,000 = PV of ordinary annuity 1 − 1.025 −48 = \$43,710.22 \$35,000 (1.025 ) d = \$1573.83 0.025 Using formula (9-2) to calculate d, \$43,710.22 FV ln ln PV = \$35,000 = 9.00 d= ln(1 + i ) ln (1.025 ) The period of deferral was 9 quarters long. The interval between the date of the loan and the first payment was 10 quarters or 2 years and 6 months. Exercise 10.4 (continued) 17. Given: For the initial investment, PV = \$10,000, i = 8.5% = 4.25%. 2 For the deferred annuity, PMT = \$1000, n = 40, and i = 4.25%. At a focal date at the end of the period of deferral, 8.5 I/Y FV of \$10,000 = PV of ordinary annuity P/Y 2 ENTER −40 d = \$1000 1 − 1.0425 (making C/Y = P/Y = 2) \$10,000 (1.0425 ) 0.0425 40 N 1000 PMT = \$19,077.27 0 FV Chapter 10: Ordinary Annuities: Future Value and Present Value CPT PV 63 Ans: –19,077.27 Using formula (9-2) to calculate d, \$19,077.27 FV ln ln PV = \$10,000 = 15.52 d= ln(1 + i ) ln (1.0425 ) The period of deferral is 15.52 half years o...
View Full Document

## This document was uploaded on 02/08/2014.

Ask a homework question - tutors are online