Problem 1
Different cash flow. Given the following cash inflow
at the end of each year, what is the future value of
this cash flow at 6%, 9%, and 15% interest rates at
the end of the seventh year?
Future Value at
6%
9%
15%
Year 1
($21,277.79)
($25,156.50)
($34,695.91)
Year 2
($26,764.51)
($30,772.48)
($40,227.14)
Year 3
($37,874.31)
($42,347.45)
($52,470.19)
Year 4-6
$0.00
$0.00
$0.00
Year 7
($150,000.00)
($150,000.00)
($150,000.00)
Future Value
$
(235,916.61)
$
(248,276.43)
$
(277,393.24)
Problem 3
Future value. A speculator has purchased land along the southern Oregon coast. He has
taken out a ten-year loan with annual payments of $7,200. The loan rate is 6%. At the end
of ten years, he believes he can sell the land for $100,000. If he is correct on the future
price, did he make a wise investment?
FV
$
100,000.00
($2,846.85)
7.11% is greater than 6%, making this example a
wise investment.
PMT
$
7,200.00
N
10
Rate
6%
1.000%
Problem 5
You are a new employee with the Metro Daily Planet. The Planet offers three different
retirement plans. Plan 1 starts the first day of work and puts $1,000 away in your
retirement account at the end of every year for forty years. Plan 2 starts after ten years and
puts away $2,000 every year for thirty years. Plan 3 starts after twenty years and puts
away $4,000 every year for the last twenty years of employment. All three plans guarantee
an annual growth rate of 8%.
Plans
30 Years
20 Years
10 Years
FV
$1,000.00
$
113,283.21
$
45,761.96
$
14,486.56
$2,000.00
$
91,523.93
$
28,973.12
$ –
$4,000.00
$
57,946.25
$ –
$ –
Part E
What do the answers in parts (a) through (d) imply about savings?
Based on the aforementioned information, it would be best to start saving immediately
with Plan 1 this way there is still investment if 40 years isn’t committed.
Problem 7
Fill in the missing present values in the following table for an ordinary annuity.
# Pay Or Yrs
FV
Annuity
PV
10
0
$
250.00
$
1,840.02
20
0
$
3,387.88
$
25,305.58
25
0
$
600.00
$
9,373.25
360
0
$
2,571.53
$
249,999.85
Problem 9
County Ranch Insurance Company wants to offer a guaranteed annuity in units of $500, payable at the end
of each year for twenty-five years. The company has a strong investment record and can consistently earn
value.
$
6,391.68
11
Payment
$
4,572.23
13