CFIN 3 Chapter 4 With Complete Solutions 100%
Solved Correctly
"If you invest $500 today in an account that pays 6 percent interest compounded
annually, how much will be in your account
after two years?" - ANSWER
Using a financial calculator, enter N = 2, I/Y= 6, and PV = -500; compute FV = 561.80"
"What is the present value of an investment that promises to pay you $1,000 in five years
if you can earn 6 percent interest
compounded annually?" - ANSWER
"Using a financial calculator, enter N = 5, I/Y= 6, and FV = 1,000; compute PV = -747.26"
Compute the present value of $1,552.90 due in 10 years at (a) a 12 percent discount rate
and (b) a 6 percent rate. - ANSWER Using a financial calculator, enter N = 10, I/Y= 6, and
FV = 1,552.90; compute PV = -867.13
The present value is the amount that must be invested today at the opportunity cost rate
to yield the future value. In other words, we subtract the interest from the future
value—that is, discount—to get the present, or current, value. In this problem, then, if
$867.13 is invested today at 6 percent compounded annually, it will grow to $1,552.90 in
10 years.
"To the nearest year, how long will it take a $200 investment to double if it earns 7
percent? How long if the
investment earns 18 percent?" - ANSWER
"(1)
, PV = -200 400
Using a financial calculator, enter I/Y= 7, PV = -200, PMT = 0, and FV = 400; compute N =
10.24 ≈ 10 years
If I/Y= 18%, N = 4.19 ≈ 4 years"
Which is more valuable at 14 percent: $1,000 in hand today or $2,000 due in six years? -
ANSWER Using a calculator, enter N = 6, I/Y= 14, PMT = 0, and PV = -1,000; compute FV
= 2,194.97
PV = 1,000(1.14)6 = 1,000(2.19497) = 2,194.97
$1,000 today is worth more. The future value of $1,000 at 14 percent over six years is
$2,194.97, which is greater than the future $2,000.00.
Or, using a calculator, enter N = 6, I/Y= 14, PMT = 0, and FV = 2,000; compute PV =
-911.17
PV = 2,000(1/1.14)6 = 2,000(0.455587) = $911.17
$1,000 today is worth more. The present value of $2,000 at 14 percent over six years is
$911.17, which is less than $1,000.00."
"Martell Corporation's sales were $12 million this year. Sales were $6 million five years
earlier. To the nearest percentage point, at
what annual rate have sales grown?" - ANSWER Using a calculator, enter N = 5, PV = -6,
PMT = 0, and FV = 12; compute I/Y= 14.87% ≈ 15%."
"If you invest $600 per year for the next 10 years, how much will your investment be
worth at the end of 10 years if your
opportunity cost is 10 percent? The first $600 investment will be made at the end of this
year." - ANSWER Using a financial calculator, enter N = 10, I/Y= 10, and PMT = -600;
compute FV = 9,562.45"
"If you invest $600 per year for the next 10 years, how much will your investment be
worth at the end of 10 years if your
opportunity cost is 10 percent? The first $600 investment will be made today." -
ANSWER Using a financial calculator, switch to BEGIN, enter N = 10, I/Y= 10, and PMT =
-600; compute FV = 10,518.70"
Solved Correctly
"If you invest $500 today in an account that pays 6 percent interest compounded
annually, how much will be in your account
after two years?" - ANSWER
Using a financial calculator, enter N = 2, I/Y= 6, and PV = -500; compute FV = 561.80"
"What is the present value of an investment that promises to pay you $1,000 in five years
if you can earn 6 percent interest
compounded annually?" - ANSWER
"Using a financial calculator, enter N = 5, I/Y= 6, and FV = 1,000; compute PV = -747.26"
Compute the present value of $1,552.90 due in 10 years at (a) a 12 percent discount rate
and (b) a 6 percent rate. - ANSWER Using a financial calculator, enter N = 10, I/Y= 6, and
FV = 1,552.90; compute PV = -867.13
The present value is the amount that must be invested today at the opportunity cost rate
to yield the future value. In other words, we subtract the interest from the future
value—that is, discount—to get the present, or current, value. In this problem, then, if
$867.13 is invested today at 6 percent compounded annually, it will grow to $1,552.90 in
10 years.
"To the nearest year, how long will it take a $200 investment to double if it earns 7
percent? How long if the
investment earns 18 percent?" - ANSWER
"(1)
, PV = -200 400
Using a financial calculator, enter I/Y= 7, PV = -200, PMT = 0, and FV = 400; compute N =
10.24 ≈ 10 years
If I/Y= 18%, N = 4.19 ≈ 4 years"
Which is more valuable at 14 percent: $1,000 in hand today or $2,000 due in six years? -
ANSWER Using a calculator, enter N = 6, I/Y= 14, PMT = 0, and PV = -1,000; compute FV
= 2,194.97
PV = 1,000(1.14)6 = 1,000(2.19497) = 2,194.97
$1,000 today is worth more. The future value of $1,000 at 14 percent over six years is
$2,194.97, which is greater than the future $2,000.00.
Or, using a calculator, enter N = 6, I/Y= 14, PMT = 0, and FV = 2,000; compute PV =
-911.17
PV = 2,000(1/1.14)6 = 2,000(0.455587) = $911.17
$1,000 today is worth more. The present value of $2,000 at 14 percent over six years is
$911.17, which is less than $1,000.00."
"Martell Corporation's sales were $12 million this year. Sales were $6 million five years
earlier. To the nearest percentage point, at
what annual rate have sales grown?" - ANSWER Using a calculator, enter N = 5, PV = -6,
PMT = 0, and FV = 12; compute I/Y= 14.87% ≈ 15%."
"If you invest $600 per year for the next 10 years, how much will your investment be
worth at the end of 10 years if your
opportunity cost is 10 percent? The first $600 investment will be made at the end of this
year." - ANSWER Using a financial calculator, enter N = 10, I/Y= 10, and PMT = -600;
compute FV = 9,562.45"
"If you invest $600 per year for the next 10 years, how much will your investment be
worth at the end of 10 years if your
opportunity cost is 10 percent? The first $600 investment will be made today." -
ANSWER Using a financial calculator, switch to BEGIN, enter N = 10, I/Y= 10, and PMT =
-600; compute FV = 10,518.70"
