PROBLEM 3.26
FACE/PAR VALUE= $100,000.00
BOND RATE= 8.00% PER YEAR
PAYMENTS/YR= 1 ANNUAL
n= 6 YEARS
PURCHASE PRICE= $95,250.00
EARNED RATE= 7.0000% PER YEAR
EXCEL FW= $85,718.24 =FV(C10,C8,C3*C5/C7,-C9)
TABLES FW= $85,718.21
= $95,250(F|P 7%,6) – $100,000(0.08)(F|A 7%,6)
PROBLEM 3.27
FACE/PAR VALUE= $100,000.00
BOND RATE= 8.00% PER YEAR
PAYMENTS/YR= 1 ANNUAL
n= 4 YEARS
SELLING PRICE= $100,000.00
EARNED RATE= 7.0000% PER YEAR
EXCEL PW= $103,387.21 =FV(C10,C8,C3*C5/C7,-C9)
TABLES PW= $103,387.68 =C9*0.7629+C3*C5*3.38721
PURCHASE PRICE = $103,387
PROBLEM 3.28
FACE/PAR VALUE= $100,000.00
BOND RATE= 8.00% PER YEAR
PAYMENTS/YR= 4 ANNUAL
n= 4 YEARS
PURCHASE PRICE= $97,500.00
SELLING PRICE= $95,000.00
EARNED RATE= ? PER YEAR
EXCEL QUARTERLY RATE = 1.913% =RATE(C9*C7,C3*C5/C7,-C11,C13)
ANNUAL RATE = 7.873% =(1+C17)^C7-1
PROBLEM 3.29
FACE/PAR VALUE= $5,000.00
BOND RATE= 8.00% PER YEAR
PAYMENTS/YR= 4 ANNUAL
n= 6 YEARS
PURCHASE PRICE= $4,940.00
EARNED RATE= 6.0000% PER YEAR
EARNED RATE = 1.4674% PER QUARTER (USING SOLVER)
EXCEL FW= $4,155.33 =FV(C15,C9*C7,C3*C5/C7,-C11)
PROBLEM 3.30
FACE/PAR VALUE= $25,000.00
BOND RATE= 8.00% PER YEAR
PAYMENTS/YR= 4 ANNUAL
n= 5 YEARS
PURCHASE PRICE= $22,250.00
EARNED RATE= 6.0000% PER YEAR
EARNED RATE= 1.4674% PER QUARTER (USING SOLVER)
EXCEL FW= $18,250.74 =FV(C15,C9*C7,C3*C5/C7,-C11)
EXCEL EOQ CF
0 -$22,250
1$500
2$500
3$500
4$500
5$500
6$500
7$500
8$500
15 $500
16 $500
17 $500
18 $500
19 $500
20 $18,751
PW = $0.00 SOLVER TARGET CELL
SELLING PRICE = $18,250.74 SOLVER CHANGE CELL
PROBLEM 3.31
FALSE WITH A SINGLE INVESTMENT, EITHER CAN BE CHOSEN SINCE
$10,000(1.01)(1.02)(1.03)(1.04)(1.05)(1.06)(1.07)(1.08)(1.09)(1.10) =
$10,000(1.10)(1.09)(1.08)(1.07)(1.06)(1.05)(1.04)(1.03)(1.02)(1.01)
PROBLEM 3.32
TRUE LET THE ANNUAL INVESTMENT BE $100
EOY
BOY CF RATE BALANCE
1$100 1% $101.00
2$100 2% $205.02
3$100 3% $314.17
4$100 4% $430.74
5$100 5% $557.27
6$100 6% $696.71
7$100 7% $852.48
8$100 8% $1,028.68
9$100 9% $1,230.26
10 $100 10% $1,463.29
EOY
BOY CF RATE BALANCE
1$100 10% $110.00
2$100 9% $228.90
3$100 8% $355.21
4$100 7% $487.08
5$100 6% $622.30
6$100 5% $758.42
7$100 4% $892.75
8$100 3% $1,022.54
9$100 2% $1,144.99
10 $100 1% $1,257.44
YOU OBTAIN A GREATER RETURN FROM INVESTMENTS WITH INCREASING RATES, INSTEAD OF DECREASING RATES.
AS THE FUND BALANCE GROWS, YOU WANT IT TO BE EXPOSED TO LARGER RATES, NOT SMALLER RATES.
PROBLEM 3.33
X = $4,321 SOLVER CHANGE CELL
EOY CF RATE BALANCE
0 -$50,000 4% -$50,000
1$4,321 4% -$47,679
2$4,321 4% -$45,265
3$4,321 3% -$42,755
4$4,321 3% -$39,716
5$4,321 3% -$36,587
6$4,321 5% -$33,363
7$4,321 5% -$30,710
8$4,321 5% -$27,925
9$29,321 $0 SOLVER TARGET CELL
PROBLEM 3.34
X = $38,653 SOLVER CHANGE CELL
EOY CF RATE BALANCE
0 -$150,000 4% -$150,000
1$38,653 4% -$117,347
2$38,653 3% -$83,388
3$38,653 3% -$47,236
4$48,653 $0 SOLVER TARGET CELL
PROBLEM 3.35
X = $102,149 SOLVER CHANGE CELL
EOY CF RATE BALANCE
0 -$150,000 3% -$150,000
1$10,000 3% -$144,500
2$10,000 3% -$138,835
3$10,000 5% -$133,000
4$10,000 5% -$129,650
5$10,000 5% -$126,133
6$10,000 5% -$122,439
7$10,000 4% -$118,561
8$10,000 4% -$113,304
9$10,000 4% -$107,836
10 $112,149 $0 SOLVER TARGET CELL
PROBLEM 3.38
DEPENDING ON THE INTERPRETATION OF “AT THE END OF EACH OF THE PREVIOUS THREE YEARS,”
TWO POSSIBLE SOLUTIONS ARE GIVEN BELOW
EOY CF RATE BALANCE
2012 $10,000 3% $10,000.00
2013 -$2,500 4% $7,800.00
2014 -$2,500 5% $5,612.00
2015 -$2,500 6% $3,392.60
2016 $0 3% $3,596.16
AMOUNT IN THE FUND = $3,596.16
EOY CF RATE BALANCE
2012 $10,000 3% $10,000.00
2013 $0 4% $10,300.00
2014 -$2,500 5% $8,212.00
2015 -$2,500 6% $6,122.60
2016 -$2,500 3% $3,989.96
AMOUNT IN THE FUND = $3,989.96
PROBLEM 3.39
INVESTMENT= $10,000.00
END OF YEAR 0 1 2 3 4 5
INTEREST RATE 4.00% 6.00% 8.00% 10.00% 12.00%
CASH FLOW $10,000.00 $0.00 $0.00 $0.00 $0.00 $0.00
FW= $14,668.09
END OF YEAR 0 1 2 3 4 5
INTEREST RATE 12.00% 10.00% 8.00% 6.00% 4.00%
CASH FLOW $10,000.00 $0.00 $0.00 $0.00 $0.00 $0.00
FW= $14,668.09
END OF YEAR 0 1 2 3 4 5
INTEREST RATE 7.96294% 7.96294% 7.96294% 7.96294% 7.96294%
CASH FLOW $10,000.00 $0.00 $0.00 $0.00 $0.00 $0.00
FW= $14,668.09
ALL ALTERNATIVES ARE EQUIVALENT
PROBLEM 3.40
INVESTMENT= $2,000.00 AT BEGINNING OF EACH OF YEARS 1-5
END OF YEAR 0 1 2 3 4 5
INTEREST RATE 7.00% 6.00% 5.00% 4.00% 3.00%
CASH FLOW $2,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00 $0.00
FW= $11,387.82
END OF YEAR 0 1 2 3 4 5
INTEREST RATE 3.00% 4.00% 5.00% 6.00% 7.00%
CASH FLOW $2,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00 $0.00
FW= $11,818.72 BEST ALTERNATIVE
END OF YEAR 0 1 2 3 4 5
INTEREST RATE 5.00% 5.00% 5.00% 5.00% 5.00%
CASH FLOW $2,000.00 $2,000.00 $2,000.00 $2,000.00 $2,000.00 $0.00
FW= $11,603.83
PROBLEM 3.41
END OF YEAR 0 1 2 3 4 5 6
INTEREST RATE 5.00% 5.00% 5.00% 7.00% 7.00% 7.00%
CASH FLOW $4,000.00 $0.00 $0.00 $2,500.00 $0.00 $0.00 $5,000.00
a FW= $13,735.17
FUTURE WORTH
INTEREST
RATE EOY
DURING CASH SEQUENTIAL
EOY PERIOD FLOW MOVEMENT
0 $4,000.00 $4,000.00
1 5.00% $0.00 $4,200.00
2 5.00% $0.00 $4,410.00
3 5.00% $2,500.00 $7,130.50
4 7.00% $0.00 $7,629.64
5 7.00% $0.00 $8,163.71
6 7.00% $5,000.00 $13,735.17
b PW= $9,685.34
PRESENT WORTH
INTEREST
RATE EOY
DURING CASH SEQUENTIAL
3 5.00% $2,500.00 $6,581.49
2 5.00% $0.00 $6,268.09
1 5.00% $0.00 $5,969.60
0 $4,000.00 $9,685.34
cA= $1,940.86 SOLVER CHANGED CELL
INTEREST
3 5.00% $1,940.86 $6,118.56
4 7.00% $1,940.86 $8,487.72
5 7.00% $1,940.86 $11,022.72
6 7.00% $1,940.86 $13,735.17 SOLVER TARGET CELL
PROBLEM 3.42
END OF YEAR 0 1 2 3
INTEREST RATE 10.00% 8.00% 12.00%
CASH FLOW $0.00 $2,000.00 -$3,000.00 $4,000.00
a FW= $3,059.20
FUTURE WORTH
INTEREST
RATE EOY
DURING CASH SEQUENTIAL
EOY PERIOD FLOW MOVEMENT
0$0.00 $0.00
110.00% $2,000.00 $2,000.00
28.00% -$3,000.00 -$840.00
312.00% $4,000.00 $3,059.20
INTEREST
RATE EOY
DURING CASH SEQUENTIAL
EOY PERIOD FLOW MOVEMENT
312.00% $4,000.00 $4,000.00
28.00% -$3,000.00 $571.43
110.00% $2,000.00 $2,529.10
INTEREST
RATE EOY
DURING CASH SEQUENTIAL
EOY PERIOD FLOW MOVEMENT
0$0.00 $0.00
110.00% $918.79 $918.79
312.00% $918.79 $3,059.20 SOLVER TARGET CELL