# Finances

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

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
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 =