Chapter 3 Homework:

P3-4a-b (pg. 103)

a. (1) PV = $1,000,000 (1.06)-10
PV = $1,000,000 (.558395)
PV = $558,395
3

(2) PV = $1,000,000 (1.09)-10

PV = $1,000,000 (.422411)
PV = $422,411

PV = $1,000,000 (1.12)-10
PV = $1,000,000 (.321973)
PV = $321,973

b. (1) PV = $1,000,000 (1.06)-15

PV = $1,000,000 (.417265)
PV = $417,265

(2) PV = $1,000,000 (1.09)-15

PV = $1,000,000 (.274538)
PV = $274,538

(3) PV = $1,000,000 (1.12)-15

PV = $1,000,000 (.182696)
PV = $182,696

P3-12a-c (pg. 104)

a. FV5 = PV (1.07)5
FV5 = $24,000 (1.403)
FV5 = $33,661
b. Beginning of Number of
Year
Years (t)
1
2
3
4
5

5
4
3
2
1

FV = CFt (1 + .07)t

Future Value

$ 2,000 1.403 =
$ 4,000 1.311 =
$ 6,000 1.225 =
$ 8,000 1.1449 =
$10,000 1.070 =
Total =

$ 2,805.10
5,243.18
7,350.26
9,159.20
10,700.00
$35,257.74

c. Gina should select the stream of payments rather than the upfront $24,000.

P3-17a (pg. 105)

a.

End of
Year (t)
1
2
3
4
5

Budget
Shortfall (1 + .08)-t =
$5,000 .925926 =
$4,000 .857339 =
$6,000 .793832 =
$10,000 .735030 =
$3,000 .680583 =

Present Value
$ 4,630
3,429
4,763
7,350
2,042
$ 22,214

An initial deposit of $22,214 would be needed to fund the shortfall for the pattern shown in the
table.

Chapter 4 Homework:
P4-17a-c (pg. 146)

Chapter 5 Homework:
P5-14 (pg. 176)