Finances

1038 Words Apr 15th, 2013 5 Pages
Workshop 2 Assignments

Answer the following questions:

1. The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is a. 9%? b. 12% compounded monthly? c. 8% compounded quarterly? d. 18% compounded monthly? e. 7% compounded continuously?

SOLUTION: PV = FV [PVFk,n] a. PV = $10,000 [PVF9,3] = $10,000 (.7722) = $7,722 b. PV = $10,000 [PVF1,36] = $10,000 (.6989) = $6,989 c. PV = $10,000
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d. You borrow $12,500 and repay $21,364.24 in three years under monthly compounding.

Note: In parts c and d, be sure to give your answer as the annual nominal rate.

SOLUTION: FV = PV [FVFk,n] a. $555 = $500 [FVFk,1] FVFk,1 = 1.1100 k = 11% b. $2,078.66 = $1,850.00 [FVFk,2] FVFk,2 = 1.1236 k = 6% c. $1,114.46 = $750.00 [FVFk,20] FVFk,20 = 1.4859 k = 2% knom = 8% d. $21,364.24 = $12,500.00 [FVFk,36] FVFk,36 = 1.7091 k = 1.5% knom = 18%

4. How much will $650 per year be worth in eight years at interest rates of a. 12% b. 8% c. 6%

SOLUTION: FVA = PMT [FVFAk,n] a. FVA = $650 [FVFA12,8] = $650 (12.2997) = $7,994.81 b. FVA = $650 [FVFA8,8] = $650 (10.6366) = $6,913.79 c. FVA = $650 [FVFA6,8] = $650 (9.8975) = $6,433.38

5. What would you pay for an annuity of $2,000 paid every six months for 12 years if you could invest your money elsewhere at 10% compounded semiannually?

SOLUTION: FVA = PMT [FVFAk,n] $279,600 = $7,500 [FVFAk,15] FVFAk,15 =

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