BRIEF EXERCISE D-2

(1) a.
b.

6%
4%

3 periods
8 periods

(2) a.
b.

5%
3%

8 periods
12 periods

BRIEF EXERCISE D-4

FV of an annuity of 1 = p X FV of an annuity factor
= $78,000 X 12.57789
= $981,075.42

BRIEF EXERCISE D-6

FV = p X FV of 1 factor
= $34,000 X 1.53862
= $52,313.08

BRIEF EXERCISE D-8

(a)

i = 10%

$28,000

Discount rate from Table 3 is .42410 (9 periods at 10%). Present

value
of $28,000 to be received in 9 years discounted at 10% is
therefore $11,874.80 ($28,000 X .42410).

(b)

i = 9%
?

$28,000 $28,000 $28,000 $28,000 $28,000 $28,000

Discount rate from Table 4 is 4.48592 (6 periods at 9%). Present

value of 6 payments of $28,000 each discounted at 9% is therefore
$125,605.76 ($28,000 X 4.48592).

BRIEF EXERCISE D-9

i = 9%

?
0

$750,000
3

Discount rate from Table 3 is .64993 (5 periods at 9%). Present value

of $750,000 to be received in 5 years discounted at 9% is therefore
$487,447.50 ($750,000 X .64993). Chaffee Company should therefore
invest $487,447.50 to have $750,000 in five years.

BRIEF EXERCISE D-11

i = 5%
?

$45,000 $45,000 $45,000 $45,000

$45,000 $45,000

14

15

Discount rate from Table 4 is 10.37966. Present value of 15 payments of

$45,000 each discounted at 5% is therefore $467,084.70 ($45,000 X
10.37966). Arthur Company should pay $467,084.70 for this annuity
contract.

BRIEF EXERCISE D-13

Diagram
for
Principal

i = 4%

$300,000

19

20

i = 4%
Diagram
for
Interest

$13,500 $13,500 $13,500 $13,500

$13,500 $13,500

19

Present value of principal to be received at maturity:

$300,000 X 0.45639 (PV of $1 due in 20 periods
at 4% from Table 3)................................................................
$136,917.00
Present value of interest to be received periodically
over the term of the bonds: $13,500 X 13.59033
(PV of $1 due each period for 20 periods at 4%
from Table 4)..........................................................................
183,469.45
Present value of bonds.................................................................
$320,386.45

20

BRIEF EXERCISE D-14

The bonds will sell at a discount (for less than $300,000). This may be
proven as follows:
Present value of principal to be received at maturity:
$300,000 X .37689 (PV of $1 due in 20 periods
at 5% from Table 3)................................................................
$113,067.00
Present value of interest to be received periodically
over the term of the bonds: $13,500 X 12.46221
(PV of $1 due each period for 20 periods at 5%
from Table 4)..........................................................................
168,239.83
Present value of bonds.................................................................
$281,306.83

BRIEF EXERCISE D-17

i = 10%
?

0
5

$3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300

1
6

2
7

Discount rate from Table 4 is 5.33493. Present value of 8 payments of

$3,300 each discounted at 10% is therefore $17,605.27 ($3,300 X
5.33493). Mark Barton should not purchase the tire retreading machine
because the present value of the future cash flows is less than the
$18,000 purchase price of the retreading machine.

BRIEF EXERCISE D-20

i=?

$4,172.65

$10,000

14

15

Present value = Future value X Present value of 1 factor

$4,172.65 = $10,000 X Present value of 1 factor
Present value of 1 factor = $4,172.65 $10,000 = .41727
The .41727 for 15 periods is found in the 6% column. Colleen Mooney
will receive a 6% return.

BRIEF EXERCISE D-23

i = 11%
$1,000 $1,000 $1,000 $1,000 $1,000 $1,000
$5,146.12

n=?

Present value = Annuity amount X Present value of an annuity factor

$5,146.12= $1,000 X Present value of an annuity factor
Present value of an annuity factor = $5,146.12 $1,000 = 5.14612

The 5.14612 at an interest rate of 11% is shown in the 8-year row.

Therefore, Patty will receive 8 payments.