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

**Unformatted text preview: **n: PMT = $90,000, n = 12(3) = 36, P/Y 12 ENTER 7. 5%
(making C/Y = P/Y = 12)
i = 12 = 0.625%
36 N 1 − ( 1 + i ) −n 90000 PMT PV = PMT 0 FV i CPT PV 1 − 1.00625 −36 Ans: –2,893,312.18 = $90,000 0.00625 = $2,893,312.18
The settlement amount is $2,893,312.18.
33. Equivalent lump payment = PV of annual payments
Given: PMT = $2000/year; n = 5; j = 4.5% compounded annually. 1 − 1.045 −5 PV = $2000 0.045 = $8779.95 The equivalent lump payment is $8779.95. Chapter 10: Ordinary Annuities: Future Value and Present Value 55 Exercise 10.3 (continued)
35. The offer having the higher
current economic value is
preferred. The present value of
the five payments
of $2000 is
PV = $2000 + $2000 1 − 1.03 −4 0.03 = $9434.20 6 I/Y P/Y 2 ENTER (making C/Y = P/Y = 2)
4 N
2000 PMT
0 FV CPT PV Ans: –7434.20 Therefore, Mr. Lindberg’s offer
is worth
$9500 − $9434.20 = $65.80 more
in current dollars.
37. Consider a $1000 purchase. It requires a $100 down
payment plus 12 monthly payments of $900/12 = $75.
Flemmings should be willing to
accept a cash amount
equal to the present value of the
payments discounted
at the rate of return that
Flemmings can earn on this
money. The present value of the
payments is
1 − (1 + i ) − n PMT PV =
i −12 1 − 1.007 = $75 0.007 = $860.35
Cash price = $100 + $860.35 = $960.35
This is a $39.65 or 3.97% discount from the $1000 list price. 56 8.4 I/Y P/Y 12 ENTER (making C/Y = P/Y = 12)
12 N 75 PMT
0 FV CPT PV Ans: –860.35 Business Mathematics in Canada, 7/e Exercise 10.3 (continued)
39. Let represent the normal monthly pension
7.5 I/Y payment P/Y 12 ENTER at age 60. The choice at age 55 is between:
(making C/Y = P/Y = 12)
(i) receiving 0.85PMT per month for 28 years, or
336 N (ii) waiting 5 years and then receiving PMT
0.85 PMT
per month for 28 − 5 = 23 years.
0 FV The economic values of the two alternatives are
CPT PV their
Ans: –119.24
present values at age 55. For option (i), 1 − 1.00625 −336 = 119.24PMT
PV = 0.85PMT 0.00625 For option (ii), the present value at
age 60 of the12(23) = 276...

View
Full
Document