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TIME VALUE OF MONEY Answer the following questions: a. Assuming a rate of 10% annually, find the FV of $1,000 after 5 years. b. What is the investment’s FV at rates of 0%, 5%, and 20% after 0, 1, 2, 3, 4, and 5 years? c. Find the PV of $1,000 due in 5 years if the discount rate is 10%. d. What is the rate of return on a security that costs $1,000 and returns $2,000 after 5 years? e. Suppose California’s population is 36.5 million people and its population is expected to grow by 2% annually. How long will it take for the population to double? f. Find the PV of an ordinary annuity that pays $1,000 each of the next 5 years if the interest rate is 15%. What is the annuity’s FV? g. How will the PV and FV of the annuity in part 1 change if it is an annuity due? h. What will the FV and the PV be for $1,000 due in 5 years if the interest rate is 10%, semiannual compounding? i. What will the annual payments be for an ordinary annuity for 10 years with a PV of $1,000 if the interest rate is 8%? What will the payments be if this is an annuity due? j. Find the PV and the FV of an investment that pays 8% annually and makes the following end-of-year payments: k. Five banks offer nominal rates of 6% on deposits; but A pays interest annually; B pays semiannually; C pays quarterly; D pays monthly; and E pays daily. 1. What effective annual rate does each bank pay? If you deposit $5,000 in each bank today, how much will you have in each bank at the end of 1 year? 2 years? 2. If all of the banks are insured by the government (the FDIC) and thus are equally risky, will they be equally able to attract funds? If not (and the TVM is the only consideration), what nominal rate will cause all of the banks to provide the same effective annual rate as Bank A? 3. Suppose you don’t have the $5,000 but need it at the end of 1 year. You plan to make a series of deposits—annually for A, semiannually for B, quarterly for C, monthly for D, and daily for E—with payments beginning today. How large must the payments be to each bank? 4. Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks? Explain. 1. Suppose you borrow $15,000. The loan’s annual interest rate is 8%. and it requires four equal end-of-year payments. Set up an amortization schedule that shows the annual payments, interest payments, principal repayments, and beginning and ending loan balances.

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

Solutions

Chapter
Section
Chapter 5, Problem 41SP
Textbook Problem

TIME VALUE OF MONEY Answer the following questions:

  1. a. Assuming a rate of 10% annually, find the FV of $1,000 after 5 years.
  2. b. What is the investment’s FV at rates of 0%, 5%, and 20% after 0, 1, 2, 3, 4, and 5 years?
  3. c. Find the PV of $1,000 due in 5 years if the discount rate is 10%.
  4. d. What is the rate of return on a security that costs $1,000 and returns $2,000 after 5 years?
  5. e. Suppose California’s population is 36.5 million people and its population is expected to grow by 2% annually. How long will it take for the population to double?
  6. f. Find the PV of an ordinary annuity that pays $1,000 each of the next 5 years if the interest rate is 15%. What is the annuity’s FV?
  7. g. How will the PV and FV of the annuity in part 1 change if it is an annuity due?
  8. h. What will the FV and the PV be for $1,000 due in 5 years if the interest rate is 10%, semiannual compounding?
  9. i. What will the annual payments be for an ordinary annuity for 10 years with a PV of $1,000 if the interest rate is 8%? What will the payments be if this is an annuity due?
  10. j. Find the PV and the FV of an investment that pays 8% annually and makes the following end-of-year payments:

Chapter 5, Problem 41SP, TIME VALUE OF MONEY Answer the following questions: a. Assuming a rate of 10% annually, find the FV

  1. k. Five banks offer nominal rates of 6% on deposits; but A pays interest annually; B pays semiannually; C pays quarterly; D pays monthly; and E pays daily.
    1. 1. What effective annual rate does each bank pay? If you deposit $5,000 in each bank today, how much will you have in each bank at the end of 1 year? 2 years?
    2. 2. If all of the banks are insured by the government (the FDIC) and thus are equally risky, will they be equally able to attract funds? If not (and the TVM is the only consideration), what nominal rate will cause all of the banks to provide the same effective annual rate as Bank A?
    3. 3. Suppose you don’t have the $5,000 but need it at the end of 1 year. You plan to make a series of deposits—annually for A, semiannually for B, quarterly for C, monthly for D, and daily for E—with payments beginning today. How large must the payments be to each bank?
    4. 4. Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks? Explain.

1. Suppose you borrow $15,000. The loan’s annual interest rate is 8%. and it requires four equal end-of-year payments. Set up an amortization schedule that shows the annual payments, interest payments, principal repayments, and beginning and ending loan balances.

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Chapter 5 Solutions

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Ch. 5 - FINDING THE REQUIRED INTEREST RATE Your parents...Ch. 5 - TIME FOR A LUMP SUM TO DOUBLE If you deposit money...Ch. 5 - TIME TO REACH A FINANCIAL GOAL You have 42,180.53...Ch. 5 - FUTURE VALUE: ANNUITY VERSUS ANNUITY DUE What's...Ch. 5 - PRESENT AND FUTURE VALUES Of A CASH FLOW STREAM An...Ch. 5 - LOAN AMORTIZATION AND EAR You want to buy a car....Ch. 5 - PRESENT AND FUTURE VALUES FOR DIFFERENT PERIOOS...Ch. 5 - PRESENT AND FUTURE VALUES FOR DIFFERENT INTEREST...Ch. 5 - GROWTH RATES Shalit Corporations 2014 sales were...Ch. 5 - EFFECTIVE RATE OF INTEREST Find the interest rates...Ch. 5 - TIME FOR A LUMP SUM TO DOUBLE How long will it...Ch. 5 - FUTURE VALUE OF AN ANNUITY Find the future values...Ch. 5 - PRESENT VALUE OF AN ANNUITY Find the present...Ch. 5 - PRESENT VALUE OF A PERPETUITY What is the present...Ch. 5 - EFFECTIVE INTEREST RATE You borrow 85,000; the...Ch. 5 - UNEVEN CASH FLOW STREAM a. Find the present values...Ch. 5 - FUTURE VALUE OF AN ANNUITY Your client is 40 years...Ch. 5 - PV OF A CASH FLOW STREAM A rookie quarterback is...Ch. 5 - EVALUATING LUMP SUMS AND ANNUITIES Crissie just...Ch. 5 - LOAN AMORTIZATION Jan sold her house on December...Ch. 5 - FUTURE VALUE FOR VARIOUS COMPOUNDING PERIODS Find...Ch. 5 - PRESENT VALUE FOR VARIOUS DISCOUNTING PERIODS Find...Ch. 5 - FUTURE VALUE OF AN ANNUITY Kind the future values...Ch. 5 - PV AND LOAN ELIGIBILITY You have saved 4,000 for a...Ch. 5 - EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A...Ch. 5 - NOMINAL INTEREST RATE AND EXTENDING CREDIT As a...Ch. 5 - BUILDING CREDIT COST INTO PRICES Your firm sells...Ch. 5 - REACHING A FINANCIAL GOAL Erika and Kitty, who are...Ch. 5 - REQUIRED LUMP SUM PAYMENT Starting next year, you...Ch. 5 - REACHING A FINANCIAL GOAL Six years from today you...Ch. 5 - FV OF UNEVEN CASH FLOW You want to buy a house...Ch. 5 - AMORTIZATION SCHEDULE a. Set up an amortization...Ch. 5 - AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT You...Ch. 5 - NONANNUAL COMPOUNDING a. You plan to make five...Ch. 5 - PAYING OFF CREDIT CARDS Simon recently received a...Ch. 5 - PV AND A LAWSUIT SETTLEMENT It is now December 31,...Ch. 5 - REQUIRED ANNUITY PAYMENTS Your father is 50 years...Ch. 5 - REQUIRED ANNUITY PAYMENTS A father is now planning...Ch. 5 - TIME VALUE OF MONEY Answer the following...Ch. 5 - TIME VALUE OF MONEY ANALYSIS You have applied for...

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