Chapter 2 - solutions

Chapter 2
Time Value of Money

Solutions to End-of-Chapter Problems



2-1 FV5 = $16,105.10.

2-2 PV = $1,292.10.

2-3 = 8.01% ≈ 8%.

2-4 N = 11.01 ≈ 11 years.

2-5 It will take 11 years to accumulate $250,000.



2-6 FV = $1,725.22.


FV = $1,845.99


2-7 NPV = $923.98.

2-8 EAR = 12.68%.

2-9 a. FV = $530.00.

b. FV = $561.80.
c. PV =$471.70.
d. PV = $445.00.
2-10 FV = $895.42.

b. FV = $1,552.92.
c. PV = $279.20.

d. PV = $867.13.

2-11 a. 14.87%.
b. $14,929,920,



2-12 These problems can all be solved using a financial calculator by entering the known values shown on the time lines and then pressing the I/YR button.

a. = 7%.

b. = 7%.

c. = 9%.

d. = 15%.


2-13 a. N = 10.24 ?

b. N = 7.27.

c. N = 4.19.

d. N = 1.00.


2-14 a. FV = $6,374.97.
b. FV = $1,105.13.


c. FV = $2,000.

d. FV = $7,012.47.



2-15 a. PV = $2,457.83.

b. PV = $865.90.

c. PV = $2,000.00.
d. PV = $2,703.61.



2-16 PV = $100/0.07 = $1,428.57. PV = $100/0.14 = $714.29.
2-17 = 9%.
2-18 a. $1,300.32.

b. = $1,600.

= $1,600.



2-19 a. FV = $423,504.48.

b. FV = $681,537.69.

c. PMT = $46,393.42.



2-20 Contract 1: PV = $9,509,596.34.


Contract 2: PV = $10,717,847.14.


Contract 3: PV = $8,624,410.90.

Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2.
2-21 a.Crissie should accept the 30-year payment option as it carries the highest present value
($68,249,727).
b.Crissie should accept the 10-year payment option as it carries the highest present value
($63,745,773).
c. Crissie should accept the lump-sum payment option as it carries the highest present value
($61,000,000).



2-22 a. PMT = $802.43.

2-23 a. FV = $881.17.

b. FV = $895.42.


c. FV = $903.06.


d. FV = $908.35.

e. FV = $910.97.

f. The FVs increase because as the compounding periods increase, interest is earned on interest more frequently.


2-24 a. PV = $279.20.


b. PV = $276.84.


c. PV = $443.72.