T-1

FV = PV * (1 + R%)^n

$64,402.23 = $10000 * (1+R/100)^75

R = 2.515%

Hence, annualized compounded rate of return on your investment would be

2.515%

T-2

FV = PV * (1 + R%)^n

= 18000 * (1+10%)^5

= $ 28989.2

Hence at the rate of 10%, he will not be able to achieve target of $30000

T-3

Current cost of home = $185000

Inflation = 6%

Expected cost of home after 20 years = 185000 *(1+6%)^20 = $593320

Using Excel to compute PMT

Where FV = $593320
Rate = 10%

Years = 20

PMT = $ 10359.14
ST -1

a. FV = PV * (1 + R%)^n

FV = 1000 * (1 + 8%)^3

= $1259.71

b. FV = 1000 * (1 + 8%/4)^12

= $1268.24

c. PMT = 250

Rate = 8% per annum

FV = 250 * (1+8%)^3 + 250 *(1+8%)^2 + = 250 * (1+8%)^1 + 250 *(1+8%)^0

=$1126.53

d. FV = 1259.71

R = 8% per annum

N=4

PMT = -279.56
ST -2

a. FV = PV * (1 + R%)^n

1000 = PV * (1+8%)^3

PV = 793.82

b. $1000 = PMT *(1+8%)^3 + PMT *(1+8%)^2 + PMT *(1+8%)^1 + PMT

*(1+8%)^0

PMT = $221.92

c. FV = PV * (1 + R%)^n

FV = 750 * (1.08)^3

FV = $944.78

Hence I would prefer to take $221.92 in four instalments.

d. FV = PV * (1 + R%)^n

1000 = 750 * (1+R%)^3

R =10.064%

e. $1000 = 186.29 *(1+R%)^3 + 186.29 *(1+R%)^2 + 186.29 *(1+R%)^1 +

186.29 *(1+R%)^0

Calculating using excel

R = 20%

f. FV = PV * (1 + R%)^n

FV = 400 *(1+8%)^3

FV = 503.885
 I would still need $ 496.115

We would need to deposit $74.80 in each half year.

g. Effective annual rate = (1+8%/2)^2 -1

8.16%

ST -3

Effective annual rate for Bank A = (1+8%/4)^4 - 1

= (1.02)^4 – 1

= 8.243%

Effective annual rate for Bank B = 8.243%

(1+ R%/12)^12 = 1.08243

R = 7.947%

4-9

a. FV = PV * (1 + R%)^n

= 500 * 1.06

= $530

b. FV = PV * (1 + R%)^n

= 500 * (1.06)^2
 = $561.80

c. PV = FV / (1+R%)^n

PV = 500 / (1.06)

= $471.70

d. PV = FV / (1+R%)^n

PV = 500 / (1.06)^2

PV = $445

4-10

a. FV = PV * (1 + R%)^n

= 500 * (1+6%)^10

= $895.42

b. FV = PV * (1 + R%)^n

=500 * (1+12%)^10

= $1552.90

c. FV = PV * (1 + R%)^n

PV = FV / (1 + R%)^n

= 500 / (1.06)^10

= $279.20

4-11 FV = PV * (1 + R%)^n

400 = 200 * (1+R%)^n

 a. 2 = (1.07)^n

n = 10 years

b. 2= (1.1)^n

n = 7 years

c. 2 = (1.18)^n

n = 4 years

4-12

a. PMT = $400

N = 10 Years

R = 10%

FV = $ 6374.97

b. PMT = $200

N = 5 Years

R = 5%

FV = $ 1105.13

c. PMT = $400
 N = 5 Years

R = 0%

FV = $ 2000

d. FV = PMT * (((1+R)^n – 1) / R ) * (1+R)

= 400 *( (1+10%)^10 – 1) / 0.1) * (1.1)

= 7012.46

FV = PMT * (((1+R)^n – 1) / R ) * (1+R)

= 200 *( (1+5%)^5 – 1) / 0.05) * (1.05)

= $ 1160.38

For R = 0%

FV = 5*400 = $2000

4- 13

PV = PMT * (( 1/ R) - (1 / (R *(1+R)^n)))

a. PV = 400 * (1/ 0.1) – (1/0.1*(1.1)^10)))

= $ 2457.82
b. PV = 200 * (1/ 0.05) – (1/0.05*(1.05)^5)))

= $ 865.90

c. PV = 5 *400 = $2000

d. PV = PMT * (( 1/ R) - (1 / (R *(1+R)^n))) * (1+R)

PV = 400 * (1/ 0.1) – (1/0.1*(1.1)^10))) * (1+0.1)

= $ 2703.36

PV = 200 * (1/ 0.05) – (1/0.05*(1.05)^5))) * (1+0.05)

= $ 909.19

PV = 4* 500

= $2000
4-14

PV for a cash flow is computed as = CFi / (1+R%)^n

a.

Cash Stream – A

Cash Rate PV (Cash Flow

Year Flow - A % - A)

1 100 8% 92.6

2 400 8% 342.9

3 400 8% 317.5

4 400 8% 294.0

5 300 8% 204.2

SUM of PV of Cash Flow - A 1251.2

Cash Stream – B

Year Cash Rate PV (Cash Flow

Flow - B % - B)

1 300 8% 277.8

2 400 8% 342.9

3 400 8% 317.5

4 400 8% 294.0
 5 100 8% 68.1

SUM of PV of Cash Flow - B 1300.3

b.

Cash Rate PV (Cash Flow

Year Flow - A % - A)

1 100 0% 100.0

2 400 0% 400.0

3 400 0% 400.0

4 400 0% 400.0

5 300 0% 300.0

SUM of PV of Cash Flow - A 1600.0

Cash Rate PV (Cash Flow

Year Flow - B % - B)

1 300 0% 300.0

2 400 0% 400.0

3 400 0% 400.0

4 400 0% 400.0

5 100 0% 100.0

SUM of PV of Cash Flow - B 1600.0

4 – 16

FV = PV * (1 + R%)^n

a. FV = 500 * (1+ 12%)^5

= $881.708

b. FV = 500 * (1+ 12%/2)^10

= $895.42

c. FV = 500 * (1+ 12%/4)^20

= $903.055

d. FV = 500 * (1+ 12%/12)^60

= $908.348

4- 17

PV = FV / (1+R)^n

a. PV= 500 / (1+12%/2)^10

= $279.197

b. PV= 500 / (1+12%/4)^20

 = $276.837

c. PV= 500 / (1+12%/12)^60

= $443.7246

4- 20

PV = PMT * (( 1/ R) - (1 / (R *(1+R)^n)))

a. 25000 = PMT * ( (1/0.1) - (1/ 0.1 * (1.1)^5)))

PMT = 25000 / 3.7907

= 6594.94

Beginning Closing

Year Balance Payment Interest Principal Balance

1 25000 6594.94 2500.00 4094.9 20905.1

2 20905.1 6594.94 2090.51 4504.4 16400.6

3 16400.6 6594.94 1640.06 4954.9 11445.7

4 11445.7 6594.94 1144.57 5450.4 5995.4

5 5995.4 6594.94 599.54 5995.4 0.0

b. PMT = 50000 / 3.7907

= $ 13189.87

c. 50000 = PMT * ( (1/0.1) - (1/ 0.1 * (1.1)^10)))

 PMT = $ 8137.27

4- 22

FV = PV * (1 + R%)^n

$ 8 mn = $ 4 mn * (1+R%)^10

R = 7.17%

4- 23

PV = $ 85000

PMT = $ 8273.59

N = 30 Years

Using Excel for calculating Rate with Rate function

R = 7.4 %

4- 24

PV = PMT * (( 1/ R) - (1 / (R *(1+R)^n)))
 a. PV = 10000 * (1/0.07 - (1/0.07 *(1.07)^4)))

= $ 33872.11

b. Ending Balance = Opening Balance *(1+ Rate%) - PMT

= $ 33872.11 *(1.07) – 10000

= $ 26243.16

4- 28

Effective Annual Interest Rate = (1+R/n)^n – 1

= (1+ 0.08/4)^4 – 1

= 8.24%

Rate PV (Cash

Year Cash Flow % Flow)

1 50 8.24% 46.2

2 50 8.24% 42.7

3 50 8.24% 39.4

4 1050 8.24% 765.0

SUM of PV of Cash Flow 893.3

4 -30

PV = PMT * (( 1/ R) - (1 / (R *(1+R)^n)))

1000000 = PMT * (1/0.15 - (1/0.15 * (1.15)^5)))

PMT = 298315.55

Amortization Schedule:

Beginning Closing

Year Balance Payment Interest Principal Balance

1 1000000 298315.55 150000.00 148315.6 851684.5

2 851684.5 298315.55 127752.67 170562.9 681121.6

3 681121.6 298315.55 102168.24 196147.3 484974.3

4 484974.3 298315.55 72746.14 225569.4 259404.8

5 259404.8 298315.55 38910.73 259404.8 0.0

Principal Paid in 2nd year = 170562.9

Total Payment in 2nd Year = 298315.55

Principal form = 57.18% ( = 170562.9 / 298315.55 ) of the payment

4- 32
Effective Annual Interest Rate = (1+R/n)^n – 1

= (1+ 0.15/12)^12 – 1

= 16.08%

In case nominal rate is compounded quarterly and effective annual rate is 16.08%,

then

Effective Annual Interest Rate = (1+R/n)^n – 1

16.08% = (1+R/4)^4 – 1

R = 15.19%

4- 34

Purchasing Power Calculation adjusted to inflation

PV = 1000000 / (1+0.03)^25

= $477605.57

Real rate of interest = (1+R)/(1+ inflation) - 1

= 1.08/1.03 – 1

= 4.854%
FV = PMT * ((1+R)^n – 1)/R) * (1+R)

477605.57 = PMT * ((1+0.04854)^25 – 1)/0.04854) * (1+0.04854)

PMT = $ 9737.61