CHAPTER 1 FINAL ANSWERS

Q.NO Answer
1 Appendix A: consumption C(0) = 0 and C(1) = 121,000

G: consumption C(0) = 100,833 and C(1) = 0

2 Appendix
a $103,846.00 consumption at t=0 and at t=1
b $105,769.20 consumption at t=0 and at t=1
tion at t=0 and at t=1
tion at t=0 and at t=1
CHAPTER 2 FINAL ANSWERS

Q.No Answer
1 $305.902
2 0.8992
3 172.2
4 1003.28; -196.72
5 "b" and "c"
6 −14.67
7 $40
8a $10.00
b $5
c $5
d $200,000
9a $90.53
b $29.46
c $3.52
d $240.18
10 a $1,822.12
b $1,914,464.43
c $13,911.69
11 a 12,624,769.60
b 12,704,891.61
c 12,712,491.50
12 a $7,835.26
b $55,474.56
c $7,936.66

13 a 10.50%
b 0.81898
c 1.72398
d 2.465
 e 0.74102
86,739.66 &
14 583,623.76
15 23, 696.15
16
17 $62,258.56
18 a -1,255,212

Does not affect NPV

calculation because
the opp coc is
unaffected by cost of
b funds available
19 d; 107,354.24
20 2653.9
21 $3,275.95
Kangaroo Autos;
22 8,938.02
23 13.647% r at which NPV=0
1428.57; 1528.57; &
24 1478.01 7% = EAR
25 a $12.5 billion 8% = EAR
b $25.0 billion
c $9.818 billion
d 10,206 billion
26 $1636.65, $ 2008.55
27 7.18%.
28 c
29 846147 (8% = EAR)
30 a $4,761,724 assuming each C = 9420713/19
b 9.81%
31 a $402,264.73
 b 323,601.58 (for e.g., balance at end of yr 2)
32 $233,659; $185,071 nominal in 1st year. Expediture assumed at end of each year
33 a $430,925.89
b $442,617.74
34 21.38 Betwn 21 & 22 withdrawals possible. Assumed that each withdrawal made at the start of each year
35 a $16,666,667
b $14,938,887
c $22,22,222 Assuming that with 3% inflation, C(1) stays at $2 mill
d $18,061,473
36 a $17,436.91
b 128,337.19 (for e.g., balance end of yr 10)
c 68.8% of initial; 5.7% of last; 35.8% after ten yrs
37 a 6.12 years
b
38
39 a 14,285,714
b 13,347,131