PROBLEM 10.12
aYEAR 2000 2001 2002 2003 2004 2005
RATE -14.84% 13.75% 10.09% 18.87% 18.79%
INDEX 165.9 141.3 160.7 176.9 210.3 249.8
b ((1+f)^4)-1 = ((INDEX2005 – INDEX2001)/INDEX2001)
(INDEX2005-INDEX2001)/INDEX2001= 76.82816%
((1+f)^4)-1 = 76.82814% SOLVER TARGET CELL
f= 15.31554% SOLVER CHANGED CELL
PROBLEM 10.13
REAL INTEREST RATE 1.6425% SOLVER CHANGED CELL
INFLATION RATE 3.5000%
COMBINED RATE 5.2000% SOLVER TARGET CELL
1.6425% SOLVING MATHEMATICALLY
PROBLEM 10.14
REAL INTEREST RATE 2.1155% SOLVER CHANGED CELL
INFLATION RATE 4.0000%
COMBINED RATE 6.2001% SOLVER TARGET CELL
2.1154% SOLVING MATHEMATICALLY
PROBLEM 10.15
REAL INTEREST RATE 10.0000%
a THE REASON FOR THE APPARENT DISCREPANCY IS THAT PRICES ON THE THINGS
THEY ARE BUYING ARE INCREASING DUE TO INFLATION. THEREFORE, THEY ARE
UNABLE TO BUY AS MUCH WITH THE SAME AMOUNT OF MONEY AS A YEAR BEFORE
b INFLATION RATE 3.6364% SOLVER CHANGED CELL
COMBINED RATE 14.0000% SOLVER TARGET CELL
3.6364% SOLVING MATHEMATICALLY
PROBLEM 10.16
REAL INTEREST RATE 14.2000%
INFLATION RATE 3.8000%
COMBINED RATE 18.5396%
PROBLEM 10.17
REAL INTEREST RATE 5.00%
INFLATION RATE 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 15.00% 20.00% 50.00%
COMBINED RATE 5.00% 6.05% 7.10% 8.15% 9.20% 10.25% 11.30% 12.35% 13.40% 14.45% 15.50% 20.75% 26.00% 57.50%
PROBLEM 10.18
CHECK
INTEREST EARNED = 10.00% INVESTMENT AT TIME 5 $262,268.73 GOAL SEEK CHANGED CELL
INFLATION RATE = 4.00%
AMOUNT INVESTED = $262,268.73 GOAL SEEK CHANGED CELL EOY BUYING POWER
0 $500,000.00
INVESTED AT TIME = 5 1 $520,000.00
TIME HORIZON = 20 2 $540,800.00
TIME ZERO BUYING POWER = $500,000.00 3 $562,432.00
4 $584,929.28
TIME ZERO BUYING POWER = $500,000.00 GOAL SEEK SET CELL 5 $608,326.45 $262,268.73
6 $632,659.51 $288,495.60
7 $657,965.89 $317,345.16
8 $684,284.53 $349,079.68
9 $711,655.91 $383,987.65
10 $740,122.14 $422,386.41
11 $769,727.03 $464,625.05
12 $800,516.11 $511,087.56
13 $832,536.75 $562,196.31
14 $865,838.22 $618,415.95
15 $900,471.75 $680,257.54
16 $936,490.62 $748,283.29
17 $973,950.25 $823,111.62
18 $1,012,908.26 $905,422.79
19 $1,053,424.59 $995,965.06
20 $1,095,561.57 $1,095,561.57 GOAL SEEK SET CELL
PROBLEM 10.19
TIME 0 LABOR REQS $350,000.00
LABOR INCREASE RATE 10.00%
INFLATION RATE 4.00%
COMBINED RATE 14.40%
a b
EOY THEN-CURRENT CONSTANT WORTH
0$350,000.00 $350,000.00
1$400,400.00 $385,000.00
2$458,057.60 $423,500.00
3$524,017.89 $465,850.00
4$599,476.47 $512,435.00
5$685,801.08 $563,678.50
PROBLEM 10.21
REAL INTEREST RATE 10.68%
INFLATION RATE 3.90%
COMBINED INTEREST RATE 15.00%
CURRENT EXPENSES $14,500.00
a EOY ACTUAL $
0
1$15,065.50
2$15,653.05
3$16,263.52
4$16,897.80
5$17,556.82
b EOY REAL $
0
1$14,500.00
2$14,500.00
3$14,500.00
4$14,500.00
5$14,500.00
cPW $54,020.14
dPW $54,020.14
PROBLEM 10.22
MATERIALS COST $55,000.00
INFLATION RATE 16.00%
a MATERIALS COST 3 YEARS AGO $35,236.17 FORMULA
$35,236.17 EXCEL
b MATERIALS COST IN 10 YEARS $242,628.93 FORMULA
$242,628.93 EXCEL
PROBLEM 10.23
REAL INTEREST RATE 16.00%
INFLATION RATE 12.40%
COMBINED INTEREST RATE 30.38%
CURRENT STEEL COST $700,000.00
PERCENTAGE INCREASE IN ORDERS 0.00%
a EOY ACTUAL $
0
1$786,800.00
2$884,363.20
3$994,024.24
4$1,117,283.24
5$1,255,826.36
b EOY REAL $
0
1$700,000.00
2$700,000.00
3$700,000.00
4$700,000.00
5$700,000.00
cPW $2,292,005.56
dPW $2,292,005.56
PROBLEM 10.24
REAL INTEREST RATE 16.00%
INFLATION RATE 12.40%
COMBINED INTEREST RATE 30.38%
CURRENT STEEL COST $700,000.00
PERCENTAGE INCREASE IN ORDERS 20.00%
a EOY ACTUAL $
0
1$944,160.00
2$1,273,483.01
3$1,717,673.88
4$2,316,798.53
5$3,124,897.86
b EOY REAL $
0
1$840,000.00
2$1,008,000.00
3$1,209,600.00
4$1,451,520.00
5$1,741,824.00
cPW $3,879,152.31
PROBLEM 10.25
COMBINED INTEREST RATE 7.00%
INFLATION RATE 4.00%
TIME HORIZON 40
FINAL AMOUNT AMASSED $2,000,000.00
a AMOUNT INVESTED EACH YEAR $10,018.28 SOLVER CHANGED CELL
FINAL AMOUNT AMASSED $2,000,000.00 SOLVER TARGET CELL
b BUYING POWER BASE 40 YRS AGO $416,578.09
c TV COST AT BEGINNING $400.00
INFLATION RATE FOR TV -3.00%
TV COST AT YEAR 40 $118.28
PROBLEM 10.26
COMBINED INTEREST RATE 8.00%
INFLATION RATE 5.00%
TIME HORIZON 40
FINAL AMOUNT IN 1 JAN 2013 $ $2,500,000.00
a FINAL AMOUNT AMASSED $17,599,971.78
b $Z PER YEAR $67,938.73
PROBLEM 10.27
REAL RETURN 15.00%
INFLATION 7.00%
COMBINED RETURN 23.05%
HORIZON 4
EOY $REAL $THEN-CURRENT
0 -$8,000.00 -$8,000.00
1$3,500.00 $3,745.00
2$3,500.00 $4,007.15
3$3,500.00 $4,287.65
4$3,500.00 $4,587.79
PW $17,992.42 $17,992.42
PROBLEM 10.28
a PAYOUT TODAY $1,000,000.00
ALT ANNUAL PAYOUT $100,000.00
(NOTE BEGINNING OF YR)
PAYOUT HORIZON 20
REAL TVOM 3.50%
INFLATION RATE 4.00%
COMBINED RATE 7.64%
THEN-CURRENT REAL
EOY LUMP SUM ANNUAL PAY ANNUAL PAY
0 $1,000,000.00 $100,000.00 $100,000.00
1 $100,000.00 $96,153.85
2 $100,000.00 $92,455.62
3 $100,000.00 $88,899.64
4 $100,000.00 $85,480.42
5 $100,000.00 $82,192.71
6 $100,000.00 $79,031.45
7 $100,000.00 $75,991.78
8 $100,000.00 $73,069.02
9 $100,000.00 $70,258.67
10 $100,000.00 $67,556.42
11 $100,000.00 $64,958.09
12 $100,000.00 $62,459.70
13 $100,000.00 $60,057.41
14 $100,000.00 $57,747.51
15 $100,000.00 $55,526.45
16 $100,000.00 $53,390.82
17 $100,000.00 $51,337.32
18 $100,000.00 $49,362.81
19 $100,000.00 $47,464.24
20 $0.00 $0.00
PW $1,000,000.00 $1,085,748.75 $1,085,748.75
DEFERRING THE PAYMENTS IS SLIGHTLY BETTER ECONOMICALLY
b PAYOUT TODAY $1,000,000.00
ALT ANNUAL PAYOUT $100,000.00
(NOTE BEGINNING OF YR)
PAYOUT HORIZON 20
REAL TVOM 3.50%
INFLATION RATE 5.24% SOLVER CHANGED CELL
COMBINED RATE 8.92%
THEN-CURRENT REAL
EOY LUMP SUM ANNUAL PAY ANNUAL PAY
0 $1,000,000.00 $100,000.00 $100,000.00
1 $100,000.00 $95,024.21
2 $100,000.00 $90,296.01
3 $100,000.00 $85,803.07
4 $100,000.00 $81,533.70
5 $100,000.00 $77,476.75
6 $100,000.00 $73,621.68
7 $100,000.00 $69,958.42
8 $100,000.00 $66,477.44
9 $100,000.00 $63,169.66
10 $100,000.00 $60,026.47
11 $100,000.00 $57,039.68
12 $100,000.00 $54,201.51
13 $100,000.00 $51,504.56
14 $100,000.00 $48,941.80
15 $100,000.00 $46,506.56
16 $100,000.00 $44,192.50
17 $100,000.00 $41,993.57
18 $100,000.00 $39,904.06
19 $100,000.00 $37,918.52
20 $0.00 $0.00
PW $1,000,000.00 $1,000,000.00 SOLVER TARGET CELL $1,000,000.00
cI WOULD TAKE THE LUMP SUM – A BIRD IN THE HAND…INFLATION MIGHT GO UP; CONCERNS ABOUT PAYMENTS;
GET IT OVER WITH. FOR THAT MATTER, IT WOULD TAKE A LOT HIGHER ANNUAL PAYOUT (E.G., $140,000) TO GET
ME TO CONSIDER TAKING THE ANNUAL PAYMENTS. THIS IS SUBJECTIVE – OTHERS WILL HAVE DIFFERENT
ANSWERS AND RATIONALE.
PROBLEM 10.29
INFLATION RATE 4.00%
COMBINED RATE 6.00%
FIRST DEPOSIT $12,580.90 SOLVER CHANGED CELL 1
INCREASED RATE OF DEPOSIT 0.00%
AMOUNT OF FIRST WITHDRAWAL $100,000.00
a BIRTHDAY DEPOSIT WITHDRAWAL
0
1 $12,580.90 $0.00
2 $12,580.90 $0.00
3 $12,580.90 $0.00
4 $12,580.90 $0.00
5 $12,580.90 $0.00
6 $12,580.90 $0.00
7 $12,580.90 $0.00
8 $12,580.90 $0.00
9 $12,580.90 $0.00
10 $12,580.90 $0.00
11 $12,580.90 $0.00
12 $12,580.90 $0.00
13 $12,580.90 $0.00
14 $12,580.90 $0.00
15 $12,580.90 $0.00
16 $12,580.90 $0.00
17 $12,580.90 $0.00
18 $12,580.90 $100,000.00
19 $0.00 $104,000.00
20 $0.00 $108,160.00
21 $0.00 $112,486.40
PW $136,221.01 SOLVER TARGET CELL 1 $136,221.01
FW $463,091.99 $463,092.00
b INFLATION RATE 4.00%
COMBINED RATE 6.00%
FIRST DEPOSIT $5,748.43 SOLVER CHANGED CELL 2
INCREASED RATE OF DEPOSIT 10.00%
AMOUNT OF FIRST WITHDRAWAL $100,000.00
BIRTHDAY DEPOSIT WITHDRAWAL
0
1 $5,748.43 $0.00
2 $6,323.28 $0.00
3 $6,955.61 $0.00
4 $7,651.17 $0.00
5 $8,416.28 $0.00
6 $9,257.91 $0.00
7 $10,183.70 $0.00
8 $11,202.07 $0.00
9 $12,322.28 $0.00
10 $13,554.51 $0.00
11 $14,909.96 $0.00
12 $16,400.95 $0.00
13 $18,041.05 $0.00
14 $19,845.15 $0.00
15 $21,829.67 $0.00
16 $24,012.64 $0.00
17 $26,413.90 $0.00
18 $29,055.29 $100,000.00
19 $0.00 $104,000.00
20 $0.00 $108,160.00
21 $0.00 $112,486.40
PW $136,221.01 SOLVER TARGET CELL 2 $136,221.01
FW $463,091.99 $463,092.00
c GRANDPARENTS NEED TO PUT UP $136,221.01 ON DATE OF BIRTH