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Date Submitted: 12/27/2012 09:47 AM
Chapter 9
Problems
1. You invest $3,000 a year for three years at 12 percent.
a. What is the value of your investment after one year? Multiply $3,000 × 1.12.
b. What is the value of your investment after two years? Multiply your answer to part a by 1.12.
c. What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer.
d. Confirm that your final answer is correct by going to Appendix A (future value of $1), and looking up the future value for n = 3, and i = 12 percent. Multiply this tabular value by $3,000 and compare your answer to the answer in part c. There may be a slight difference due to rounding.
9-1. Solution:
a. $3,000 × 1.12 = $3,360.00
b. $3,360 × 1.12 = $3,763.20
c. $3,763.20 × 1.12 = $4,214.78
d. $3,000 × 1.405 = $4,215.00 (Appendix A)
2. What is the present value of:
a. $9,000 in 7 years at 8 percent?
b. $20,000 in 5 years at 10 percent?
c. $10,000 in 25 years at 6 percent?
d. $1,000 in 50 years at 16 percent?
Solution:
Appendix B
PV = FV × PVIF
a. $ 9,000 × .583 = $5,247
b. $20,000 × .621 = $12,420
c. $10,000 × .233 = $2,330
d. $ 1,000 × .001 = $1
3. You will receive $5,000 three years from now. The discount rate is 8 percent.
a. What is the value of your investment two years from now? Multiply $5,000 × .926 (one year’s discount rate at 8 percent).
b. What is the value of your investment one year from now? Multiply your answer to part a by .926 (one year’s discount rate at 8 percent).
c. What is the value of your investment today? Multiply your answer to part b by .926 (one year’s discount rate at 8 percent).
d. Confirm that your answer to part c is correct by going to Appendix B (present value of $1) for n = 3 and i = 8%. Multiply this tabular value by $5,000 and compare your answer to part c. There may be a slight difference due to rounding.
9-3. Solution:...