Chapter 4 Flashcards
4.1
4A-1. The simple interest calculations for parts a. and b. can be presented in tabular form:
Date
1/1/14 $5,000 $5,000 × 0.06 = $300 $5,000
1/1/15 1,000 1,000 × 0.06 = 60 1,000
1/1/16 3,000 3,000 × 0.06 = 180 3,000
1/1/17 6,000 6,000 × 0.06 = 360 6,000
∗Assuming all transactions occur at the beginning of the period
∗∗Since all interest earned is withdrawn, the ending account balance equals the
beginning account balance.
c. The true rate of interest is 6%, the same as the stated rate of interest since the simple interest
b. a.
Beginning
Balance*
Annual
Interest
method is being used.
4.2
4A.2. a. Future value of $450 in 10 years at 6% annual compound interest:
b. The future value at the end of six years of an $800 annual end-of-year deposit at 7% interest:
Calc: N=10,I=6,PV=$450. PMT=0, FV=$805.88, ans.
EXCEL: =FV(.06,10,0,450) ans $805.88
Calc: N=5,I=8,PV=0. PMT=700, FV=$4,106.62 ans.
EXCEL: =FV(.08,5,700,0) ans $4,106.62
4.3
4A.3. Future value of an investment: FVn = Investment amount × FVIFk, n
Investment
A Calc: N=20,I=5,PV=200. PMT=0, FV=$530.66 ans.
EXCEL: =FV(.05,20,0,200) ans $530.66
B Calc: N=7,I=8,PV=4500. PMT=0, FV=$7,712.21 ans.
EXCEL: =FV(.08,7,0,4500) ans $7,712.21
C Calc: N=10,I=9,PV=10000. PMT=0, FV=$23,670 ans.
EXCEL: =FV(.09,10,0,10000) ans $23,670
D Calc: N=12,I=10,PV=25000. PMT=0, FV=$78,460.71 ans.
EXCEL: =FV(.10,12 ,0,25000) ans $78,460.71
E Calc: N=5,I=11PV=37000 PMT=0, FV=$62,347.15 ans.
EXCEL: =FV(.11,5,0,37000) ans $62,347
4.4
Calc: N=24,I=1,PV=10000. PMT=0, FV=$12,697.35 ans.
EXCEL: =FV(.01,24,0,10000) ans $12,697.35
4,5
4A.5. Future value of an annuity investment: FVAk, n =
Calc: N=number of periods, i=rate of return per period,
PV=0, PMT = investment per period, FV= future value
Excel: =FV(periodic rate, number of periods, periodic payment, present value)
Investment
A FVA8%, 10 yrs.
. Sol’n. = $36,216.41
B FVA12%, 6 yrs. =
. Sol’n. = $4,057.59
C FVA20%, 5 yrs. = 2
. Sol’n. = $7,441.60
D FVA6%, 8 yrs.
. Sol’n. = $118,769.61
E FVA14%, 30 yrs.
FVIFA from Appendix A, Table A.2.
. Sol’n. = $1,427,147.39
4,7
4A.5. Future value of an annuity investment: FVAk, n =
Calc: N=number of periods, i=rate of return per period,
PV=0, PMT = investment per period, FV= future value
Excel: =FV(periodic rate, number of periods, periodic payment, present value)
Investment
A FVA8%, 10 yrs.
. Sol’n. = $36,216.41
B FVA12%, 6 yrs. =
. Sol’n. = $4,057.59
C FVA20%, 5 yrs. = 2
. Sol’n. = $7,441.60
D FVA6%, 8 yrs.
. Sol’n. = $118,769.61
E FVA14%, 30 yrs.
FVIFA from Appendix A, Table A.2.
. Sol’n. = $1,427,147.39
4.8
4A.8. Present value: PV = FVn × PVIFk, n
Investment N i PV PMT FV
Answer
A 4 12% $ 4,448.63 0 7,000.00
B 20 8% $6,007.35 0 28,000.00
C 12 14% $ 2,075.59 0 10,000.00
D 6 11% $ 80,196.13 0 150,000.00
E 8 20% $ 10,465.56 0 45,000.00
