App e
App e
5%
6%
3 periods
8 periods
(2) Case A
Case B
3%
4%
8 periods
12 periods
E-1
(1) CASE A
CASE B
CASE C
(a)
12%
8%
3%
(b)
7 periods
11 periods
16 periods
(2) CASE A
CASE B
CASE C
10%
10%
4%
20 periods
7 periods
10 periods
i = 10%
?
0
$25,000
1
E-2
i = 9%
?
$750,000
$450,000
1
E-3
$46,000 $46,000
14
15
$80,000
$80,000
$80,000
$80,000
$80,000
$80,000
E-4
$300,000
Diagram
for
Principal
19
20
i = 5%
?
$16,500 $16,500
Diagram
for
Interest
19
20
$113,067*
205,626**
$318,693**
*$300,000 X .055
**Rounded.
BRIEF EXERCISE E-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 .31180 (PV of $1 due in 20 periods
at 6% from Table 3)...............................................................
Present value of interest to be received periodically
over the term of the bonds: $16,500 X 11.46992
(PV of $1 due each period for 20 periods at 6%
from Table 4) .........................................................................
Present value of bonds ................................................................
$ 93,540*
189,254*
$282,794*
*Rounded.
E-5
$65,000
Diagram
for
Principal
i = 6%
?
$2,600
$2,600
$2,600
$2,600
$2,600
$2,600
Diagram
for
Interest
$45,822.40
12,785.03
$58,607.43
*$65,000 X .04
E-6
$2,500,000
Diagram
for
Principal
14
15
16
i = 4%
?
Diagram
for
Interest
14
15
16
$1,334,775
873,923**
$2,208,698**
**Rounded
E-7
$48,850
$48,850
$48,850
$48,850
$48,850
$48,850
10
$40,000
$45,000
$50,000
To determine the present value of the future cash inflows, discount the future
cash flows at 8%, using Table 3.
Year 1 ($40,000 X .92593) =
Year 2 ($45,000 X .85734) =
Year 3 ($50,000 X .79383) =
Present value of future cash inflows
$ 37,037.20
38,580.30
39,691.50
$115,309.00
E-8
$12,000
11
12
$75,000
n=?
E-9
$1,200 $1,200
14
15
$10,271.38
The 8.55948 for 15 periods is found in the 8% column. Joanne Quick will
therefore earn a rate of return of 8%.
E-10
18,000
50,000
I/YR.
PV
PMT
FV
10.76%
*2024 2014
BRIEF EXERCISE E-25
10
60,000
8,860
I/YR.
PV
PMT
FV
7.80%
178,000*
8,400
I/YR.
PV
PMT
FV
3.55%
(semiannual)
*$198,000 $20,000
E-11
6.9
16,000
PV
PMT
FV
Answer:
86,530.07
(b)
Inputs:
10
8.65
14,000**
200,000*
PV
PMT
FV
Answer:
178,491.52
*200 X $1,000
E-12
**$200,000 X .07
42,000
PV
PMT
FV
Answer:
589.48
(b)
Noteset payments to 1 per year.
Inputs:
5
7.25
N
8,000
PV
PMT
FV
Answer:
1,964.20
E-13
E-14