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    HW1 - Answer Key

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    thelasttt
    This document provides the answer key for a time value of money exam. It includes 25 multiple choice or calculation questions with the time value of money principles of present value, future value, annuities, etc. It also provides the formulas used and values calculated for each question.

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    HW1 - Answer Key

    Uploaded by

    thelasttt
    80 views3 pages
    This document provides the answer key for a time value of money exam. It includes 25 multiple choice or calculation questions with the time value of money principles of present value, future value, annuities, etc. It also provides the formulas used and values calculated for each question.

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    HW1- Answer Key

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    This document provides the answer key for a time value of money exam. It includes 25 multiple choice or calculation questions with the time value of money principles of present value, future value, annuities, etc. It also provides the formulas used and values calculated for each question.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    80 views3 pages

    HW1 - Answer Key

    Uploaded by

    thelasttt
    This document provides the answer key for a time value of money exam. It includes 25 multiple choice or calculation questions with the time value of money principles of present value, future value, annuities, etc. It also provides the formulas used and values calculated for each question.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 3

    FIN1001 Spring 2009

    Answer Key for Time Value of Money I

    #1:
    a. m=1 N = 10 i=6 PMT = 0 FV = 18000 PV = 10,051.11
    b. m=1 N= 5 i = 12 PMT = 0 FV = 20000 PV = 14,753.10
    c. m=1 N = 15 i=6 PMT = 0 FV = 26000 PV = 6,304.87
    d. m=1 N = 40 i = 20 PMT = 0 FV = 10000 PV = 6.80

    #2:
    a. m=1 N = 10 i=7 PMT = 0 PV = 10000 FV = 19,671.51
    b. m=1 N = 10 i = 12 PMT = 0 PV = 10000 FV = 31,058.48
    c. m=1 N = 30 i = 10 PMT = 0 PV = 10000 FV = 174,494.02
    d. m = 12 N = 360 i = 10 PMT = 0 PV = 10000 FV = 198,373.99

    #3:
    a. m=1 N=6 i = 12 PMT = 0 FV = 12000 PV = 6,079.57
    b. m=1 N = 15 i=8 PMT = 0 FV = 15000 PV = 4,728.63
    c. m=1 N = 10 i=8 PMT = 5000 FV = 0 PV = 33,550.41
    d. m=1 N = 40 i=7 PMT = 40000 FV = 0 PV = 533,268.35

    #4:
    a. m=1 N = 10 i = 10 PMT = 10000 PV = 0 FV = 159,374.25
    b. m=1 N = 40 i = 8 PMT = 10000 PV = 0 FV = 2,590,565.19

    #5: 8-year Investment: m = 1 N = 8 i = 10 PV = -12000 PMT = 0 FV = 25,723.07


    12-year Investment: Use this $25,723.07 as PV to get the FV of 12-year investment at 13%.
    m = 1 N = 12 i = 13 PV = -25723.07 PMT = 0 FV = 111,497.24

    #6: m=1 N = 15 i=8 PMT = 16000 FV = 0 PV = 136,951.66

    #7: m=1 N = 50 i = 15 PMT = 0 FV = 100000 PV = 92.28

    #8: Correct approach is to compare PV of the 20-year annuity and $180,000 offer. You choose the
    one with a greater amount. If the PV is less than $180,000, then she would be better off by selling
    it out for $180,000. If not, she’d better off by keeping it.

    PV of her song-right is
    m = 1 N = 20 i = 10 PMT = 20000 FV = 0 PV = 170,271.27,
    which is less than $180,000. Thus, you’d better sell it at $180,000
    #9: PV of the 10-year annuity is
    m = 1 N = 10 i = 10 PMT = 30000 FV = 0 PV = 184,337.01,
    which is greater than $160,000. Thus, keep it!

    #10: m = 1 N = 5 i = 20 PMT = 0 PV = -1000 FV = 2,488.32


    m = 1 N = 3 i = 15 PMT = 0 PV = -2488.32 FV = 3,784.42

    #11: You use the effect rate of the quarterly compounding APR of 20% for annual interest rate.
    m = 1 N = 10 i = 21.55 PMT = 2000 PV = 0 FV = 56,052.22

    #12: m=1 i=7 PV = 1 PMT = 0 FV = 2 N = 10.24 years


    m=1 i=7 PV = 1 PMT = 0 FV = 3 N = 16.24 years
    m=4 i=7 PV = 1 PMT = 0 FV = 2 N = 39.95 quarters
    m=4 i=7 PV = 1 PMT = 0 FV = 3 N = 63.33 quarters
    m = 12 i=7 PV = 1 PMT = 0 FV = 2 N = 119.17 months
    m = 12 i=7 PV = 1 PMT = 0 FV = 3 N = 188.88 months

    #13: m=1 N=5 i = 10 PMT = 0 FV = 50000 PV = 31,046.07

    #14: m = 4 N = 40 i = 12 PV = -30000 PMT = 0 FV = 97,861.13

    #15: Annual: m = 1 N = 5 i = 7 PV = -5000 PMT = 0 FV = 7,012.76


    Quarterly: m = 4 N = 20 i = 7 PV = -5000 PMT = 0 FV = 7,073.89
    Monthly: m = 12 N = 60 i = 7 PV = -5000 PMT = 0 FV = 7,088.13

    #16: Compute PV of each offer (you can do in FV as well).

    APR of 11%
    PV of 1st offer: $5,000 itself
    PV of 2nd offer: m = 1 N = 8 i = 11 PMT = 1000 FV = 0 PV = $5,146.12
    PV of 3rd offer: m = 1 N = 8 i = 11 PMT = 0 FV = 12000 PV = $5,207.12
    Thus, choose the 3rd offer!

    APR of 12%
    PV of 1st offer: $5,000 itself
    PV of 2nd offer: m = 1 N = 8 i = 12 PMT = 1000 FV = 0 PV = $4,967.64
    PV of 3rd offer: m = 1 N = 8 i = 12 PMT = 0 FV = 12000 PV = $4,846.60
    Thus, choose the 1st offer!

    #17: m=1 N=3 PV = -12 PMT = 0 FV = 18 i = 14.47%


    #18: m=1 N = 15 PV = -15000 PMT = 0 FV = 60000 i = 9.68%

    #19: m=1 N = 20 PV = -50000 PMT = 4013 FV = 0 i = 5.00%

    #20: m=1 N = 20 i = 12 PV = -400000 FV = 0 PMT = 53,551.51

    #21: a. m=1 N = 5 i = 12 PMT = 0 PV = -80000 FV = 140,987.33


    b. m=1 N = 10 i = 14 PV = -140987.33 PMT = 27029.18

    #22: a. m = 12 N = 300 i = 10 PMT = 10000 FV = 0 PV = 1,100,472.30


    b. m=1 N = 40 i=9 FV = -1100472.30 PV = 0 PMT = 3,256.97

    #23: m=1 N=5 PV = -10000 PMT = 2500 FV = 0 i = 7.93%

    #24: a. m = 12 N = 360 i=7 FV = 0 PV = -300000 PMT = 1995.91


    b. $418,526.69

    The following questions are the possible questions that you may see in your exam:

    c. What is the total interest paid after the first 15 years payments? $281,319.95
    d. What is the total amortization after the first 15 years payments? $77,943.40
    e. What is the balance after the first 15 years payments? $222,056.60

    #25:
    Previous 5 years investment Next 5 years for investment 4 year College
    | | | |
    t = -5 t=0 t=5 t=9
    (College Entrance Date)

     Find the value of 4-year college expense, discounting up to t=5 time point. This is the PVA
    of $18,000 annuity for 4 years @ 10%: $57,057.58

     Find the value of $3,000 investment per year for 10 years (previous 5 and the next 5 years)
    in terms of the value at t=5 time point where she will enroll. This is FV of $3,000 annuity
    for 10 years @10% annual compounding: $47,812.27

     Find a shortage in funds between the two amounts: $57,057.58 - $47,812.27 = $9,245.31

     Find annual payment for the next 5 years to make the FV of $9,245.31.

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