Finance Chapter 4 Homework Since it is only an approximation, we know the Rule

CHAPTER 4 –

41

APR = 52(7.64%)

APR = 397.42%

c. Using the cash flows from the loan, we have the PVA and the annuity payments and need to find

the interest rate, so:

PVA = $68.43 = $25[{1 – [1/(1 + r)]4}/r]

Using a spreadsheet, trial and error, or a financial calculator, we find:

73. To answer this, we can diagram the perpetuity cash flows, which are: (Note, the subscripts are only to

differentiate when the cash flows begin. The cash flows are all the same amount.)

…..

C3

C2 C2

C1 C1 C1

Thus, each of the increased cash flows is a perpetuity in itself. So, we can write the cash flows

stream as:

74. Since it is only an approximation, we know the Rule of 72 is exact for only one interest rate. Using

the basic future value equation for an amount that doubles in value and solving for t, we find:

FV = PV(1 + r)t

$2 = $1(1 + r)t

ln(2) = t ln(1 + r)

t = ln(2)/ln(1 + r)

75. We are only concerned with the time it takes money to double, so the dollar amounts are irrelevant.

So, we can write the future value of a lump sum with continuously compounded interest as:

CHAPTER 4 –

43

Calculator Solutions

1.

2.

Enter

10

5%

$1,250

N

I/Y

PV

PMT

FV

Solve for

Enter

N

I/Y

PV

PMT

FV

Solve for

Enter

5%

N

I/Y

PV

PMT

FV

Solve for

3.

Enter

6

7%

$13,827

N

I/Y

PV

PMT

FV

Solve for

$9,213.51

Enter

$43,852

N

I/Y

PV

PMT

FV

Solve for

$9,425.69

Enter

N

I/Y

PV

PMT

FV

Solve for

Enter

Solve for

4.

Enter

4

$189

$287

N

I/Y

PV

PMT

FV

Solve for

11.01%

Enter

N

I/Y

PV

PMT

FV

Solve for

5.

Enter

7%

$625

$1,104

N

I/Y

PV

PMT

FV

Solve for

8.41

Enter

12%

$810

$5,275

N

I/Y

PV

PMT

FV

Solve for

16.53

N

I/Y

PV

PMT

FV

Solve for

17.21

Enter

N

I/Y

PV

PMT

FV

Solve for

29.92

6.

Enter

6.25%

$1

$2

N

I/Y

PV

PMT

FV

Solve for

11.43

Enter

6.25%

$1

$4

N

I/Y

PV

PMT

FV

Solve for

22.87

7.

Enter

5.9%

I/Y

PMT

Solve for

Enter

$410

N

I/Y

PV

PMT

FV

Solve for

Enter

N

I/Y

PV

PMT

FV

Solve for

8.02%

Enter

N

I/Y

PV

PMT

FV

8.

N

I/Y

PV

PMT

FV

Solve for

11.

CFo

$0

CFo

$0

CFo

$0

C01

$795

C01

$795

C01

$795

F01

1

F01

1

F01

1

C02

$945

C02

$945

C02

$945

1

$1,325

1

$1,860

1

I = 10

I = 18

I = 24

NPV CPT

$3,769.62

$3,118.22

$2,737.40

12.

Enter

9

5%

$4,350

N

I/Y

PV

PMT

FV

Solve for

$30,919.02

Enter

9

$4,350

N

I/Y

PV

PMT

FV

Solve for

$16,470.34

Enter

5%

$6,900

N

I/Y

PV

PMT

FV

Solve for

$29,873.39

Enter

$6,900

N

I/Y

PV

PMT

FV

Solve for

$19,759.11

13.

Enter

15

7%

$5,200

N

I/Y

PV

PMT

FV

Solve for

$47,361.15

Enter

40

7%

$5,200

N

I/Y

PV

PMT

FV

Solve for

$69,324.89

15.

Enter

7.1%

4

NOM

EFF

C/Y

Solve for

7.29%

Enter

13.2%

12

NOM

EFF

C/Y

Solve for

14.03%

Enter

NOM

EFF

C/Y

Solve for

9.31%

16.

Enter

2

NOM

EFF

C/Y

Solve for

9.86%

Enter

17.4%

12

NOM

EFF

C/Y

Solve for

16.15%

Enter

NOM

EFF

C/Y

Solve for

8.26%

17.

Enter

11.4%

NOM

EFF

C/Y

Solve for

12.01%

Enter

11.6%

2

NOM

EFF

C/Y

Solve for

11.94%

18. 2nd BGN 2nd SET

Solve for

Enter

$5,200

Solve for

Enter

102.77%

52

NOM

EFF

C/Y

Solve for

176.68%

19.

N

I/Y

PV

PMT

FV

Solve for

55.04

20.

Enter

NOM

EFF

Solve for

21.

Enter

11

8.9%

$1,000

N

I/Y

PV

PMT

FV

Solve for

$2,554.50

Enter

$1,000

N

I/Y

PV

PMT

FV

Solve for

$2,606.07

Enter

$1,000

N

I/Y

PV

PMT

FV

Solve for

$2,652.19

23. Stock account:

Enter

360

10%/12

$850

N

I/Y

PV

PMT

FV

Solve for

$1,921,414.74

Enter

6%/12

N

I/Y

PV

PMT

FV

Solve for

Enter

7%/12

N

I/Y

PV

PMT

FV

Solve for

CHAPTER 4 –

48

24.

25.

Enter

6

$65,000

$125,000

N

I/Y

PV

PMT

FV

Solve for

Enter

$205,000

N

I/Y

PV

PMT

FV

28.

Enter

28

7%

$7,300

N

I/Y

PV

PMT

FV

Solve for

Enter

2

7%

N

I/Y

PV

PMT

FV

Solve for

29.

Enter

15

11%

$750

N

I/Y

PV

PMT

FV

Solve for

$5,393.15

Enter

5

8%

N

I/Y

PV

PMT

FV

Solve for

$3,670.49

30.

Enter

360

5.4%/12

.80($725,000)

N

I/Y

PV

PMT

FV

Solve for

Enter

22 × 12

5.4%/12

N

I/Y

PV

PMT

FV

Solve for

31.

Enter

6

1.99%/12

$12,400

N

I/Y

PV

PMT

FV

Enter

N

I/Y

PV

PMT

FV

Solve for

41.42%

35.

Enter

20

10%

$4,700

N

I/Y

PV

PMT

FV

Solve for

$40,013.75

Enter

20

$4,700

N

I/Y

PV

PMT

FV

Solve for

$58,572.39

Enter

20

15%

$4,700

N

I/Y

PV

PMT

FV

Solve for

$29,418.86

36.

N

I/Y

PV

PMT

FV

Solve for

80.62

37.

N

I/Y

PV

PMT

FV

Solve for

.548%

38.

Enter

360

4.8%/12

$1,025

N

I/Y

PV

PMT

FV

Solve for

Enter

$79,637.38

N

I/Y

PV

PMT

FV

Solve for

Enter

N

I/Y

PV

PMT

FV

Solve for

39.

CFo

$0

C01

$1,400

F01

1

C02

$0

F02

1

C03

$2,300

F03

1

C04

$2,700

F04

1

I = 7.1%

NPV CPT

$5,231.56

Enter

Solve for

40.

CFo

$1,000,000

C01

$1,335,000

F01

1

C02

$1,670,000

F02

1

C03

$2,005,000

F03

1

C04

$2,340,000

F04

1

C05

$2,675,000

F05

1

C06

$3,010,000

F06

1

C07

$3,345,000

F07

1

C08

$3,680,000

F08

1

C09

$4,015,000

F09

1

$4,350,000

I = 5.8%

NPV CPT

$20,969,067.06

41.

N

I/Y

PV

PMT

FV

Solve for

.504%

Enter

6.04%

12

NOM

EFF

C/Y

Solve for

6.21%

42.

Enter

3

13%

$165,000

N

I/Y

PV

PMT

FV

Solve for

N

I/Y

PV

PMT

FV

Solve for

17.01%

43.

Enter

20

6.7%

$8,500

N

I/Y

PV

PMT

FV

Solve for

Enter

N

I/Y

PV

PMT

FV

Solve for

44.

Enter

96

6%/12

$1,940

N

I/Y

PV

PMT

FV

Solve for

N

I/Y

PV

PMT

FV

Solve for