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CH 4 Solutions Final
CH 4 Solutions Final
Chapter 4
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
(in $million)
4.25 P = 1.3(P/A,1%,28)(P/F,1%,2)
= 1.3(24.3164)(0.9803)
= $30,988,577
4.26 F = 3.9(F/P,0.5%,120)
= 3.9(1.8194)
= $7,095,660,000
(in $million)
(in $billion)
(in $million)
Chapter 4
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
4.28 F = 50(20,000,000)(F/P,1.5%,9)
= 1,000,000,000(1.1434)
= $1.1434 billion
4.29 A = 3.5(A/P,5%,12)
= 3.5(0.11283)
= $394,905
(in $million)
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
4.44 i = e0.13 1
= 13.88%
4.45 i = e0.12 1
= 12.75%
4.46
0.127 = er 1
r/yr = 11.96%
r /quarter = 2.99%
Chapter 4
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
Chapter 4
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.
4.67 P = 7 + 7(P/A,4%,25)
= $116.3547 million
Answer is (c)
4.68 Answer is (a)
4.69 Answer is (d)
4.70 PP>CP; must use i over PP of 1 year. Therefore, n = 7
Answer is (a)
4.71 P = 1,000,000 + 1,050,000{[1- [(1 + 0.05)12/( 1 + 0.01)12]}/(0.01-0.05)
= $16,585,447
Answer is (b)
4.72
Answer is (d)
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
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The amount of money required up front is now $28,245 (the origination fee has also
changed). The plan C values for F1C, F2C, and F3C are shown below.
F1C = (40,000 28,245)(F/P,0.25%,120)
= $15,861.65
F2C = 0
F3C = 170,000 [124,500(F/P,9.5%/12,120)
1300.06(F/A,9.5%/12,120)]
= $108,097.93
FC = F1C + F2C + F3C
= $123,959.58
The future worth of Plan C is considerably higher than either Plan A ($87,233) or
Plan B ($91,674). Therefore, Plan C with a 15-year fixed rate is the preferred
financing method.
2. Plan A
Loan amount = $142,500
Balance after 10 years = $129,582.48
Equity = 142,500 129,582.48 = $12,917.52
Total payment made = 1250.56(120) = $150,067.20
Interest paid = 150,067.20 12,917.52 = $137,149.68
3.
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
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Increase from
one interest rate
to the other
-----
106.50
108.71
110.56
112.11
Increase varies:
6. In buying down interest, you must give lender money now instead of money later.
Therefore, to go from 10% to 9%, lender must recover the additional 1% now.
103.95/month
P&I @ 10% = 1250.54
P&I @ 9% = 1146.59
Difference = $103.95/month
P = 103.95(P/A,10%/12,360)
= 103.95(113.9508)
= $11,845.19
Chapter 4
3
. . . . . . 360
month
10
PROPRIETARY MATERIAL. The McGraw-Hill Companies, Inc. All rights reserved. No part of this Manual may be
displayed, reproduced or distributed in any form or by any means, without the prior written permission of the publisher, or used
beyond the limited distribution to teachers and educators permitted by McGraw-Hill for their individual course preparation. If you are
a student using this Manual, you are using it without permission.