Fundamentals of Financial Management (Concise 6th Edition)

A-4 Appendix A Solutions to Self-Test Questions and Problems

c.

Using a! nancial calculator, input N! 3, I/YR! 8, PV! 0, PMT! "333.333,

and FV!? Solve for FV! $1,082.13.

d.

Using a! nancial calculator in begin mode, input N! 3, I/YR! 8, PV! 0,

PMT! "333.333, and FV!? Solve for FV! $1,168.70.

e.

Using a! nancial calculator, input N! 3, I/YR! 8, PV! 0, FV! 1259.71,

and PMT!? Solve for PMT! "$388.03. Therefore, you would have to make

3 payments of $388.03 each beginning on January 1, 2010.

a. Set up a time line like the one in the preceding problem:

Note that your deposit will grow for 4 years at 8%. The deposit on January 1,

2009, is the PV; and the FV is $1,000. Using a! nancial calculator, input N! 4,

I/YR! 8, PMT! 0, FV! 1000, and PV!? Solve for PV! "$735.03.

PV!

FV N

_______

(1 # I) N

! $1,000______

(1.08)^4

! $735.03

b.

Here we are dealing with a 4-year annuity whose! rst payment occurs 1 year

from today, on 1/1/10, and whose future value must equal $1,000. You

should modify the time line to help visualize the situation. Using a! nancial

calculator, input N! 4, I/YR! 8, PV! 0, FV! 1000, and PMT!? Solve for

PMT! "$221.92.

c. This problem can be approached in several ways. Perhaps the simplest way

is to ask this question: If I received $750 on 1/1/10 and deposited it to earn

8%, would I have the required $1,000 on 1/1/13? The answer is no.

FV 3! $750(1.08)(1.08)(1.08)! $944.78

1/1/09 8% 1/1/10 1/1/11 1/1/12

!333.333 !333.333 !333.333

FV =?

1/1/09 8% 1/1/10 1/1/11 1/1/12

!333.333 !333.333 !333.333

FV =?

1/1/09 8% 1/1/10 1/1/11 1/1/12

!333.333 !333.333 !333.333 FV =?

1/1/09 8% 1/1/10 1/1/11 1/1/12

!333.333 !333.333 !333.333 FV =?

1/1/09 8% 1/1/10 1/1/11 1/1/12

???

FV = 1,259.71

1/1/09 8% 1/1/10 1/1/11 1/1/12

???

FV = 1,259.71

ST-3ST-3

1/1/09 8% 1/1/10 1/1/11 1/1/12 1/1/13

PV =? FV = 1,000

1/1/09 8% 1/1/10 1/1/11 1/1/12 1/1/13

PV =? FV = 1,000

1/1/09 8% 1/1/10 1/1/11 1/1/12

???

1/1/13

?

FV = 1,000

1/1/09 8% 1/1/10 1/1/11 1/1/12

???

1/1/13

?

FV = 1,000

1/1/09 8% 1/1/10 1/1/11 1/1/12

! 750

1/1/13

FV =?

1/1/09 8% 1/1/10 1/1/11 1/1/12

! 750

1/1/13

FV =?