Chapter 5 Selected Questions and Problems – Week 5 Fin 324
Seventh Edition 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. 54 For the same stated rate, daily compounding is best. You would earn more “interest on interest.” Problems: 51 0
1


PV = 10,000 2
 3
 4
 5
 FV5 = ? FV5 = $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.
53 0

PV = 250,000 18

FV18 = 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%.
55 0
1


PV = 42,180.53 5,000 2
N – 2
 • • • 
5,000
5,000 N – 1

5,000 N

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. 59 a. 0
 1
 $500(1.06) = $530.00. 500 FV = ? Using a financial calculator, enter N = 1, I/YR = 6, PV = 500, PMT = 0, and FV = ? Solve for FV = $530.00.
b. 0

500 1
 2

$500(1.06)2 = $561.80.
FV = ? Using a financial calculator, enter N = 2, I/YR = 6, PV = 500, PMT = 0, and FV = ? Solve for FV = $561.80.
c. 0

PV = ? 1

500 $500(1/1.06) = $471.70. Using a financial calculator, enter N = 1, I/YR = 6, PMT = 0, and FV = 500, and PV = ? Solve for PV = $471.70.
d. 0

PV = ? 1
 2

$500(1/1.06)2 = $445.00.
500 Using a financial calculator, enter N = 2, I/YR = 6, PMT = 0, FV = 500, and PV = ? Solve for PV = $445.00. 511 a. 2005

6 2006
 2007
 20082009 2010



12 (in millions) With a calculator, enter N = 5, PV = 6, PMT = 0, FV = 12, and then solve for I/YR = 14.87%.
b. The calculation described in the quotation fails to consider the compounding effect of interest. It can be demonstrated to be incorrect as follows:
$6,000,000(1.20)5 = $6,000,000(2.48832) = $14,929,920,
which is greater than $12 million. Thus, the annual growth rate is less than 20%; in fact, it is about 15%, as shown in Part a.