Vous êtes sur la page 1sur 38

Chapter 4 Answers

4-1
(a)
The value of B is given by B = 100 (P/F, 10%, 1) + 100 (P/F, 10%, 3) + 100 (P/F, 10%, 5).
The values of these factors are:

0.9091

0.7513

0.6209

Therefore, B = 100 (0.9091) + 100 (0.7513) + 100 (0.6209)


B = $228.13
(b)
The value of C is given by the sum of the present values of 200 spread over 4 years at 10%.
C = 200 (P/F, 10%, 1) + 200 (P/F, 10%, 2) + 200 (P/F, 10%, 3) + 200 (P/F, 10%, 4)
C = 200 (0.9091) + 200 (0.8264) + 200 (0.7513) + 200 (0.6830)
C = $633.96
(c)
We need to find (F/A, 10%, 4), as there is no outflow in the first year and the entire process lasts 5 years.
This works out to 4.641.
Given that A = 10, F = $46.41
This amount now bears interest for 1 more year, and thus V at the end of the fifth year is given by
V = 46.41 (1 + 0.1) = $51.05

4-3
P = 1,000
A = 50
i = 3.50%
n=?
The P/A factor is 20, and we can look up the value for n for the corresponding interest rate in Appendix B.
Thus, the value of n is read as 35.

4-5
A = 300
n = 10
i = 5.25%
P=?
The factor that we have to calculate is P/A = [(1 + i)n 1]/[i(1 + i)n]
Plugging in the number, P/A = 7.628840472
Thus, P = P/A A = $2,288.65

4-7
A = 280
n = 60
i = 1.00%
P=?
The factor that we have to calculate is P/A = [(1 + i)n 1]/[i(1 + i)n]
Plugging in the number, P/A = 44.95503841 (This can also be read off from the table in Appendix B.)
Thus, P = P/A A = $12,587.41
To this we must add the down payment = $3,000
Thus, the price of the car is $15,587.

4-9
F = 25
n=3
i = 10.00%
A=?
We need to find (A/F, 10%, 3), which can be read off from the table in Appendix B. This is read as 0.3021.
Thus, A = F A/F = 7.5525 million dollars per year
If there is an average of 20 million vehicles on the road every year, then toll to be collected per vehicle = $7.55 MM/20 MM = 38.

4-11
(P/A, 6%, 10) = 7.360
(P/A, 7%, 10) = 7.024
(P/A, 6.5%, 10) is calculated by linear interpolation between the values for 6% and 7%, which works out to 7.192.
Application of the formula yields 7.189.
The difference results from the non-linearity in the formulae.

4-13
Rate of interest i = 15%
Let the engineer who wants a million dollars on his 60th birthday deposit a sum, A, every year on his birthday from year 20 to year 59.
(See diagram below.)
F = $1,000,000
F1

Age

19

20
AA

21
A A

59

22
A A

60

Thus, the period n during which he pays an annual sum = 59 19 = 40 years, going by the convention in the book.
This intermediate amount, F1, bears interest for 1 year until he reaches 60 years of age, and results in $1 million on his 60th birthday.
Thus, F1 (1 + i) = $1,000,000
Thus, F1 = $869,565

Now, F1 = $869,565
n = 40
i = 15.00%
A=?
We need to find (A/F, 15%, 40), which can be read off from the table in Appendix B. This is read as 0.00056.
Thus, A = F A/F = $487

4-15

30 payments of
equal value
A = 1,000
A

40

41

42

43

44

45

46

47

48

49

50

A
51

52

AA

64

P1

P is to be calculated given that A = $1,000; i = 2% every six months; and nominal interest rate = 4%.
First let us calculate P1, which is the present value (midway between the 49th and 50th year) corresponding to the 30 semi-annual
payments of A = $1,000 starting from the 50th year.
P1 = A (P/A, 2%, 30)
(P/A, 2%, 30) = 22.396
Now this P1 is the result of the original amount P bearing compound interest for 19 installments.
Thus,
P = P1 (P/F, 2, 19)
P1 (P/F, 2, 19) = 0.6864
Thus, P = 1,000 22.396 0.6864
= $15,372.61

4-17
(a)
The value of the car that Frank Jenson purchases = $4,200
Because a 1/3 down payment is made, the balance = $2,800
This is the present worth of a series of payments corresponding to the following:
P = $2,800
i = 0.75% (9% annually; monthly installments)
n = 36
(A/P, 0.75%, 36) = 0.0318
Thus, A = $89.04 (This is the equated monthly installment [EMI].)
The amount of Franks monthly payment is $89.04.
Date
1 Jan.
1 Feb.
1 Mar.
1 Apr.
1 May
1 Jun.
1 Jul.
1 Aug.
1 Sep.

Principal at
Beginning
2,800.00
2,731.96
2,663.41
2,594.35
2,524.76
2,454.66
2,384.03
2,312.87
2,241.18

1 Oct.

2,168.94

Interest on Principal
Balance
Repaid
21.00
68.04
20.49
68.55
19.98
69.06
19.46
69.58
18.94
70.10
18.41
70.63
17.88
71.16
17.35
71.69
16.81
72.23
16.27

The EMI of $89 was calculated above.

72.77

EMI from
Formula
89.04
89.04
89.04
89.04
89.04
89.04
89.04
89.04
89.04
89.04

EMI paid on 1 Feb.


EMI paid on 1 Mar.
EMI paid on 1 Apr.
EMI paid on 1 May
EMI paid on 1 Jun.
EMI paid on 1 Jul.
EMI paid on 1 Aug.
EMI paid on 1 Sept.
EMI paid on 1 Oct. plus
balance principal

The starting principal on 1 January is $2,800.


Interest on the principal for one month is calculated at 0.75% of the principal, which works out to $21.
Thus, the principal repaid is the EMI less interest, which works out to $68.04.
This calculation is carried out until the EMI to be paid on 1 October; $2,168.94 is the principal pending on that date.
This principal sum has to be added to the EMI pending on 1 October, which is $89.04.
Thus, the amount owed by Frank on 1 October is $2,257.98.

4-19
The present worth factors (P/F, 12, n = 1 to 4) are given below:
0.8929
0.7972
0.7118
0.6355
For the present worth of all the cash flows over the next 4 years to be 0, we have:
B 0.8929 + (800 B) 0.7972 + (800 B) 0.7118 + (800 1.5B) 0.6355 = 0
Or, 800 0.7972 + 800 0.7118 + 800 0.6355 = (0.7972 + 0.7118 + 1.5 0.6355 0.8929)B
So, B = 1,093.2

4-21
P = $500
n = 16
i = 1.00% per month
We need to find (A/P, 1%, 16) = 0.0679
A = A (A/P) = $34.0

4-23
The payments of A = $4,000 in Years 18, 19, 20, and 21 are equivalent to an amount P in Year 17.
Taking i = 5% and n = 4, we have (P/A, 5%, 4) = 3.546.
Thus, P at Year 17 = $14,184.
This amount is the sum of two streams, P1 and P2.
A series of 4 payments of 600 in Years 4 to 7 yields a sum in Year 7; this sum then bears interest for 10 years, until Year 17, and can
be designated as P1.
P1 = 600 (F/A, 5%, 4) (F/P, 5%, 10)
= 600 4.31 1.629
= $4,212.59
Thus, by subtraction, P2 = $9,971.41, and this must result from the periodic payments A from Year 8 to Year 17.
Thus, we need to find A such that A (F/A, 5%, 10) = 9971.41.
(F/A, 5%, 10) = 12.578
Therefore, the required sum A = $792.77 to be invested every year from Year 8 to Year 17.

4-25
Note: The method of solution used for this problem is similar to that adopted in 4-17(b).
The $150 bicycle is bought with a down payment of $15, so the principal to be repaid is $135.
i = 1.50%
Date
1 Dec.
1 Jan.
1 Feb.
1 Mar.
1 Apr.
1 May
1 Jun.
1 Jul.
1 Aug.
1 Sept.
1 Oct.
1 Nov.
1 Dec.
1 Jan.
1 Feb.
1 Mar.

Principal at Interest on Principal EMI from


Beginning
Balance
Repaid
Formula
135.00
2.03
7.98
10.00
127.03
1.91
8.09
10.00
118.93
1.78
8.22
10.00
110.71
1.66
8.34
10.00
102.38
1.54
8.46
10.00
93.91
1.41
8.59
10.00
85.32
1.28
8.72
10.00
76.60
1.15
8.85
10.00
67.75
1.02
8.98
10.00
58.76
0.88
9.12
10.00
49.65
0.74
9.26
10.00
40.39
0.61
9.39
10.00
31.00
0.46
9.54
10.00
21.46
0.32
9.68
10.00
11.78
0.18
9.82
10.00
1.96
0.03
1.99

EMI paid on 31 Dec


EMI paid on 31 Jan
EMI paid on 28 Feb
EMI paid on 31 Mar
EMI paid on 30 Apr
EMI paid on 31 May
EMI paid on 30 Jun
EMI paid on 31 Jul
EMI paid on 31 Aug
EMI paid on 30 Sep
EMI paid on 31 Oct
EMI paid on 30 Nov
EMI paid on 31 Dec
EMI paid on 31 Jan
EMI paid on 28 Feb
EMI paid on 31 Mar

Payment
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

The equated monthly installment (EMI) is given as $10.


The starting principal on 1 December is $135.
Interest on this principal for one month is calculated at 1.5% of the principal, which works out to $2.03.
Thus, principal repaid is EMI less interest, which works out to $7.98.
This calculation is carried out until 1 March, when the principal outstanding is $1.96.
Adding the interest (which works out to $0.03), the last payment is $2,
There will be 15 payments of $10, and the 16th installment will be $2.

4-27
The problem here is that A, the equal values spread over 12 installments, is not in the standard form in that the payment starts at time
t = 0.
Thus, the first installment A has the present worth of A, whereas the other 11 installments have corresponding interest components.
Thus, the present value $3,000 can be considered to be as follows:
$3,000 = A (down payment) + A (P/A, 1%, 11)
Or, $3,000 = A + 10.368A
Where A = 3000/11.368 = $263.90
The principal pending after down payment = $2,736.10
We can set up a table similar to the one in problem 4-25.
i = 1.00%
Since he makes the first installment as the down payment, the principal payable is reduced from the original cost by the EMI.
Principal at
Beginning
2,736.10

Interest on
Balance
27.36

Principal
Repaid
236.54

EMI from
Formula
263.90

Payment No.

2,499.56
2,260.66
2,019.37
1,775.66
1,529.52

25.00
22.61
20.19
17.76
15.30

238.90
241.29
243.70
246.14
248.60

263.90
263.90
263.90
263.90
263.90

3
4
5
6
Due as the 7th
installment

This is so because the first


payment was the down payment

1,280.92
When the buyer pays the 7th installment of $263.90, the principal outstanding will be $1,280.92.
Therefore, he needs to pay $1,544.82 to clear the loan.
If he agrees to pay the student $1,000, the car will cost him $2,544.82.

4-29
The four flows of $8,000 for 4 years from 1 January 2008 have a present worth on 1 January 2007 denoted by P1.
i = 5.75%
n=4
A = $8,000
Thus, P1 = 8,000 (P/A, 5.75%, 4)
The P/A factor is [(1 + i)n 1]/[i(1 + i)n] = 3.4850
Thus, P1 = $27,880.28
This is the future value after n = 7 years of the sum P2, which was available on 1 January 2001.
Thus, P2 = P1 (P/F, 5.75%, 6)
P2 = P1 0.6761
Or, P2 = $18,851.00
This amount P2 is in turn the future value F of a series of payments A made over a period of n = 10 years.
Thus, A = P2 (A/F, 5.75, 10)
(A/F, 5.75, 10) = i/[(1 + i)n 1] = 0.0768
Thus, A = $1,447.06

Alternative method of this problem using GOAL SEEK:


X = 1,447.06Amount to be deposited every year from 1991 to 2000; this is the cell to be varied in order to get zero at the end of year
2011, which is the final cell in the column labelled End of Year.
RoR 5.75%

Year

1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

1,447
1,447
1,447
1,447
1,447
1,447
1,447
1,447
1,447
1,447
19,935
21,081
22,293
23,575
24,931
26,364
27,880
29,483
22,719
15,565
8,000

End of
Year
1,530
3,149
4,860
6,670
8,583
10,607
12,747
15,011
17,404
19,935
21,081
22,293
23,575
24,931
26,364
27,880
29,483
22,719
15,565
8,000
0

Deposit equal installments


Deposit equal installments
Deposit equal installments
Deposit equal installments
Deposit equal installments
Deposit equal installments
Deposit equal installments
Deposit equal installments
Deposit equal installments
Deposit equal installments
No deposits
No deposits
No deposits
No deposits
No deposits
No deposits
No deposits
Withdraw8,000
Withdraw8,000
Withdraw8,000
Withdraw8,000

Steps to be followed:
1. Set up the table to the left with some arbitrary value, say 1,300, in the cell that represents the amount to be deposited every year
from 1991 to 2000 (highlighted in yellow, above).
2. Go to Tools/Goal Seek.
3. Set cell at the end of the 'End of Year' column (highlighted in green), while varying the cell that contains the amount to be deposited
every year from 1991 to 2000 (yellow).
4. Click OK.
5. The solution converges to 1,447.

4-31
P = $3,000
n=6
i = 8.00% per year
A=?
(A/P, 8%, 6) = 0.2163
Therefore, A = $648.90
Old interest = 8.00%
Date
1
2
3
4

Principal at
Beginning
3,000.00
2,591.10
2,149.49
1,672.55

New interest = 7.00%


Interest on
Balance
240.00
207.29
171.96
117.08

Principal Repaid EMI from


Formula
408.90
648.90
441.61
648.90
476.94
648.90
117.08

Interest on
Balance
117.08
80.66
41.68

Principal Repaid EMI from


Formula
$520.33
$637.41
$556.75
$637.41
$595.72
$637.41

(A/P, 7%, 3) = 0.3811


Hence, new EMI = $637.41
Date
1
2
3
4

Principal at
Beginning
1,672.55
1,152.22
595.47
0.26

The first three payments were $648.90, and the last three were $637.41.

EMI paid at end of Year 1


EMI paid at end of Year 2
EMI paid at end of Year 3
EMI paid on 31 March

4-33
A/P = 0.049
n = 24
i=?
By trial and error, you can determine that the value of A/P is 0.0499 for n = 24 when the interest rate is 1.5%.
Note: We must bear in mind that this is a monthly rate.

4-35
Price = $3,575
Advance = $375
Principal outstanding = cash price less down payment = $3,200
A = $93.41
Therefore, P/A = 34.258 when n = 45
Selecting the 1.25% rate table, we can interpolate this between the values for 40 and 48.
Thus i = 1.25%
When the down payment = $800, the principal pending = $2,775.
Now, if P/A = 34.258 for n = 45, then A/P = 1/(P/A) = 0.0292
Therefore, A = $81.00 per month
Effective interest rate = 16.1%

4-37
Find i and n such that:
The capital recovery factor A/P = 0.1728.(1)
The sinking fund factor A/F = 0.0378. (2)
Dividing (1) by (2), F/P = 4.5714.
(3)
n
Expression (3) is equal to (1 + i)

Expression is [i(1 + i)n]/[(1 + i)n 1]


Expression is i/[(1 + i)n 1]

Substituting this value in Equation (2), we have:


i/[(4.5714) 1] = 0.0378
Or, i = 0.0378 (4.5714 1)
Or, i = 0.135
Substituting this value of i in Equation (3), we have:
(1 + 0.135)n = 4.5714
Or, n = log (4.5714)/log(1.135)
Or, n = 12.00184741
Thus, i = 13.50% and n = 12 years

4-39
Since the cash flows are at the beginning of each year, the series will give a future value F at the beginning of Year 15.
This F will bear interest for one year to give the desired result at the end of Year 15.
A = $200
n = 15
i = 7.00% per year
F=?
(F/A, 7%, 15) = 25.129 will be multiplied on A
(F/P, 7%, 1) = 1.07 will be multiplied on F
Amount in the account at the end of 15 years = $5,377.61

4-41
(a)
C = 25 (P/F, 10%, 2) + 50 (P/F, 10%, 3) + 75 (P/F, 10%, 4)
(P/F, 10%, 2) = 0.8264
(P/F, 10%, 3) = 0.7513
(P/F, 10%, 4) = 0.6830
C = $109.45
A faster method is to use the arithmetic gradient method:
G = $25
i = 10%
n = 4 years
Now, G (P/G, 10%, 4) = 4.378
P = G (P/G, 10%, 4) = 25 4.378 = $109.45
(b)
A = 25
n=4
i = 10.00% per year
G = 25
F = F1 + F2
F1 = A (F/A, 10%, 4) ( F/A, 10%, 4) = 4.641
F2 = G (F/G, 10%, 4) ( F/G, 10%, 4) = 6.410
Thus, F = $276.28

F/G = 1/i (((1 + i)n 1)/i n)

(c)
i = 10.00%
Let us calculate the present value P at time t = 0 for the incremental flows 40, 80, and 120 at Years 1, 2, and 3.
P = 40 (P/F, 10%, 1) + 80 (P/F, 10, 2) + 120 (P/F, 10%, 3)
These factors are
0.9091
0.8264
0.7513
Thus, P = $192.63
This P now pays out as four equal values of A spread over 4 years.
A = P (A/P, 10%, 4)
(A/P, 10%, 4) = 0.3155
Thus, A = $60.78
4-43
The present value P of the cash flows can be found by summing the present values of the individual flows in Years 1 to 3.
i = 10.00%
P = 100 + 150 (P/F, 10%, 1) + 200 (P/F, 10%, 2) + 250 (P/F, 10%, 3)
Note: This is identical to the factors in 4-41(c).
Thus, P = $589.47

4-45
i = 10.00%
The present worth P of the flows in Years 2, 3, and 4 is given by:
P = G (P/G, 10%, 4)
G = 100
(P/G, 10%, 4) = 4.378
Hence, P = 437.8 (This value bears interest for 5 years to make equal payments C in Years 6, 7, and 8.)
The future value factor for 5 years = (F/P, 10, 5) = 1.611
Hence F at Year 5 = 705.30
We now need (A/P, 10%, 3) = 0.4021 (As this amount in Year 5 gives 3 equal payments in Years 6, 7, and 8.)
Thus, C = $283.60

4-47
i = 10%
Present worth P of the flows of 100, 200, and 300 in Years 6, 7, and 8 is given by multiplying them by the corresponding P/F factors.
(P/F, 10%, n = 6, 7, or 8) = 0.5645 0.5132 0.4665
Thus, P = 100 0.5645 + 200 0.5132 + 300 0.4665 = 299.04 at t = 0
(A/P, 10%, 4) = 0.3155 (This can be multiplied by P to get the value of the uniform flows D in Years 1 to 4.)
Thus, D = $94.35

4-49
i = 12%
Cash flow 2 can be split into two series of 5 years:
One a uniform series where A = 150
And another where G = 150
Thus, the present worth of these two series P can be calculated by computing:
(P/A, 12%, 5) = 3.605 and (P/G, 12%, 5) = 6.397
Thus, P = 1500.3 upon multiplying A and G by the respective factors.
This can be converted into equal flows of A for 4 years by the factor (A/P, 12%, 4)
(A/P, 12%, 4) = 0.3292
Thus, A = $493.90

4-51
i = 10%
This can be split into 3 series:
The first a uniform series of A = 300 for n = 5 years
The second a gradient with G = 100 for n = 3 years
The last a solitary F = 100 for n = 4 years
(P/A, 10%, 5) = 3.791 to be multiplied by 300
(P/G, 10%, 3) = 2.329 to be multiplied by 100
(P/F, 10%, 4) = 0.683 to be multiplied by 100
Thus, P = $1,438.50

4-53
The given series can be considered to be the difference between two gradient series:
First series: A = 1,000, G = 150 starting from Year 1 going on until Year 8.
Second series: A = 150, G = 150 starting from Year 6 until Year 8.
Hence, Equation (1) is correct.

4-55
The series required can be represented as the difference of two series as shown:
Thus, P = 85,000 (P/A, 4%, 5) 10,000 (P/G, 4%, 5)
(P/A, 4%, 5) = 4.452
(P/G, 4%, 5) = 8.555
Thus, P = $292,870

4-57
Let us consider the summation of two series:
Uniform series A = 500, i = 8%, n = 4
Gradient series G = 500, i = 8%, n = 4
The present worth of these two series can be found by multiplying A and G by the respective factors:
(P/A, 8%, 4) = 3.312
(P/G, 8%, 4) = 4.650
P = 3,981 (This is the amount from the original debt that is repaid by summing these series.) Therefore, from the original debt of $5,000, the
amount remaining to be repaid is $1,019.
The future value of this stream is what is required (X), and the factor is (F/P, 8%, 5) = 1.469.
Thus, X = $1,496.91

4-59
The given series can be expressed as the sum of two series:
Uniform series A = 50, i = 3%, n = 11
Gradient series G = 10, i = 3%, n = 10
The future value F of the summation is required.
(F/A, 3%, 11) = 12.808
For the second series, the time period is only 10 years; the conventional series runs from 0 to n; this one is from 1 to 11.
(P/G, 3%, 10) = 36.309
P/G is to be multiplied by F/P to get the future value, as F/G is not tabulated directly.
(F/P, 3%, 10) = 1.344
Thus, F = $1,128.39

4-61
Let Series (a) have uniform payments A over Years 1 to 4.
This second series can be considered to be the difference of the two series.
(One uniform series of 3B, which decreases in steps of B to 0 over a period of 4 years, while the other series has the gradient
increasing, with 0 in Year 1, B in Year 2, 2B in Year 3, and 3B in Year 4.)
We need to remember that for summing gradient series, the cash flows in Years 0 and 1 are 0.
Now, since these series are equal at interest rate i, we have: A (P/A, i, 4) = 3B (P/A, i, 4) B (P/G, i, 4)
Let us take a numerical example and calculate B corresponding to A:
Let A = 100 and i = 10%
Then, 3.17 100 = 3B 3.17 4.378B
Where B = 61.77

Value of B series = 317.00 (same as A)


Now if we were to double the interest rate, the value of the A series would be
A (P/A, 20%, 4) = A 2.589 = 258.9
B series = 3B (P/A, 20%, 4) B (P/G, 20%, 4)
Now, (P/G, 20%, 4) = 3.299
B series = 275.99 (This is clearly greater than the A series, which is 258.9.)
Thus, we can say that at an interest rate of 2i, Series (b) (the reducing series) is more valuable.

4-63
(a)
Consider the summation of two series as follows:
Uniform series A = 20,000, i = 8%, n = 10
Gradient series G = 2,000, i = 8%, n = 10
(P/A, 8%, 10) = 6.710
(P/G, 8%, 10) = 25.977
Thus, P = $186,154
(b)
For a geometric gradient, the factor (P/A1) is given by:
(P/A1) = [1 (1 + g)n(1 + i)n]/[i g]
i = 8% g = 10% n = 10 A1 = 20,000
The value of the factor = 10.0702
Thus, P = $201,405

4-65
(a)
Consider the summation of two series as follows:
Uniform series A = 20,000, i = 10%, n = 10
Gradient series G = 2,000, i = 10%, n = 10
(P/A, 10%, 10) = 6.145
(P/G, 10%, 10) = 22.891
Thus, P = $168,682
(b)
For a geometric gradient, the factor (P/A1) is given by:
(P/A1) = [n(1 + i)1] = 9.0909 (Note: In this case i = n, and the formula used in 4-63(b) will not be valid.)
i = 10% g = 10% n = 10 A1 = 20,000
Thus, P = $181,818

4-67
For a geometric gradient, the factor (P/A1) is given by:
(P/A1) = [1 (1 + g)n(1 + i)n]/[i g]
i = 10% g = 8% n = 15 A1 = $60,000
The value of the factor = 12.0304
Thus, P = $721,824

4-69
For a geometric gradient, the factor (P/A1) is given by:
(P/A1) = [1 (1 + g)n(1 + i)n]/[i g]
i = 10% g = 15% n = 5 A1 = $400
The value of the factor = 4.9779
Thus, P = $1,991

4-71
(a)
For a geometric gradient, the factor (P/A1) is given by:
(P/A1) = [1 (1 + g)n(1 + i)n]/[i g]
i = 10% g = 8% n = 6 A1 = $1,500
The value of the factor = 5.2125
Thus, P = $7,819
We are required to calculate the future value F, for which we multiply by the F/P factor = (1 + i)6
Thus, F works out to $13,852.
(b)
For a geometric gradient where the interest rate and growth rates are equal, the factor (P/A1) is given by:
(P/A1) = [n(1 + i)1] = 5.5556 (This is because in this case i = n, and the formula used in 4-63(b) will not be valid.)
i = 8% g = 8% n = 6 A1 = 1,500
Therefore, P = $8,333
Thus, F = P(1 + 0.08)6 = $13,224

4-73
The coach receives his first year's salary, so the alumni are going to pay for his salary from Year 2 onwards.
Thus A1, the first term in the gradient series, which is payable in Year 2, is 8% more than his starting salary of $225,000.
We need to find the present worth (at the end of Year 1) of the salaries that he will get in Years 2 through 5 (this works out to 4 years).
For a geometric gradient, the factor (P/A1) is given by:
(P/A1) = [1 (1 + g)n(1 + i)n]/[i g]
i = 12% g = 8% n = 4 A1 = $243,000
The value of the factor = 3.3846
Thus, P = $822,462 (this is what the coach receives in addition to his first year salary of $225,000).
Thus, the coach receives a total sum of $1,047,462.
4-75
Interest rate = 1% per month
No. of compoundings in a year, m = 12 months
Effective interest rate = [(1 + im] 1 = 12.68%
4-77
Nominal interest rate = 12% per year
No. of compoundings in a year, m = 4
Effective interest rate = [(1 + (i/m)]m 1 = 12.55%

4-79
Effective interest rate = [(1 + (i/m)]m 1 = 0.0931
m=4
We are required to find i.
Plugging in the values in the above relationship, we have:
[1 + i/4]4 = 1.0931
Or, 4 log (1 + i/4) = log 1.0931 = 0.038659894
Where i = 9.00%

4-81
Effective rate = 16.10%
m = 12
We need to find the nominal rate of interest i.
Thus, we have (1 + i/12)12 1 = 0.161
Or, (1 + i/12)12 = 1.161
Or, 12 log (1 + i/12) = log (1.161)
Or, log (1 + i/12) = 0.005402685
Or, 1 + i/12 = 1.012517842
Or, i = 15.0%

4-83
First we need to find the value of i (per month) such that 1,000 (A/P, 1%, 12) = 90.30.
Thus, the value of the factor is 0.0903, and by trial and error, the entry in the 1 1/4% table corresponding to n = 12 gives this value.
(a) Effective monthly rate of interest = 1.25%
(b) The nominal annual rate = 1.0125 12 = 15.0%
(c) Effective annual rate = (1 + 0.0125)12 1 = 16.1%
4-85
Nominal interest rate i = 10% compounded quarterly
Therefore, m = 4
(a) Effective interest rate = 10.38%
(b)
Let the effective interest per working day be i:
Then, (1 + i)252 1 = 10.38%
Or, (1 + i)252 = 1.1038
Or, log (1 + i) = log(1.1038)/252 = 0.0001702
Or, 1 + i = 1.00039
Or, i = 0.0392%

(c)
We are required to find (A/P, 0.0392%, 2 252), where P = $206 and n = 504 (as this is a 2-year subscription).
(A/P, i, n) = [i(1 + i)n]/[(1 + i)n 1] = 0.002186977
Thus, the value of the subscriber copy A = $0.45, or 45
4-87
(a)
Nominal interest rate = 6% compounded semi-annually
Effective rate of interest considering semi-annual compounding = 6.09%
Effective rate of interest considering continuous compounding = 6.18%
(b)
The amount P = 2,000 will have a future value F at n = 5.
This F is the present worth of equal amounts A from the 6th to the 9th period; thus, n = 4.
P = 2,000 i = 3% every 6 months n = 5
(F/P, 3, 5) = 1.1590
(A/P, 3, 4) = 0.2690
Thus, A = $623.54
(c) Total interest paid = $494.17

4-89
On Day 10, the treasurer pays $98 on a bill worth $100 if it is paid on Day 30, which is 20 days later.
So, P = 98F = 100 for 1 compounding period = 20 days
We know that F = P (1 + i) for a given period.
Thus, 100 = 98 (1 + i) where i = 2.04%.
No. of compounding periods, m = 365/20 = 18.25 (considering a year = 365 days)
The interest calculated above is for one period, so for m = 18.25, the effective interest rate = (1 + i) m 1 = 44.59%

4-91
Interest rate for the first 4 years = 5.50% nominal, compounded 4 times per year
Interest rate for the next 6 years = 6.50% nominal, compounded 4 times per year
Principal = $10,000
The two multiplying factors are (1 + 5.5%/4)4 4 and (1 + 6.5%/4)6 4
The factors are 1.2442 and 1.4724
Thus, F = $18,319.23

4-93
P = 2,000 A = 51 n = 50
A/P = 0.0255 (This corresponds to an interest rate of 1% per month.)
This is equivalent to 12% annually.
Effective interest rate = 12.68%

4-95
(a)
Principal amount borrowed by Shannon = $10,000
Nominal interest = 9% compounded 12 times per year
Nominal interest per month = 0.75%
(A/P, 0.75%, 12) = 0.0875
A = $875 per month
Total interest paid by Shannon in the year = $500
Interest charges payable when loan is closed with 3rd installment = (12 + 11 + 10)/78 500 = $211.54 (by the Rule of 78s)
Additional sum = Principal + Interest computed above less what has already been paid (3 875)
This is equal to $7,586.54.
(b)
Exact method: we just need to find the present worth of the 9 equal payments of 875.
(P/A, 0.75%, 9) = 8.672
Thus, P = P/A A = $7,588.00

4-97
Rate of growth of traffic = 5% per year
Time frame = 2 years; this is when the population is required
With continuous compounding = 1.1052 is the growth factor
Initial traffic P = 2,000 cars per day
Future traffic flow after 4 years = 2,210

4-99
Nominal interest rate per period = 1.75% per month
Nominal interest rate per year = 21.00%
Effective interest rate with continuous compounding = 23.37%

4-101
Bank North interest = 6.50% compounded 365 times per year
Effective rate of interest = 6.7153%
Bank South interest = 6.50% compounded continuously
Effective rate of interest = 6.7159%
For a principal of $10,000, Bank South will give an additional $0.06, or 6 in interest.

4-103
(a)
Interest rate = 0.5% per month
Principal = $1,000 million
(F/A, r, n) = $2,506,260 every month
Note: In the above calculation, the actual principal has been halved, as the interest is paid on the average sum.
Money is being paid continuously, which is 0 at the beginning of the month, and 1 billion at the end of the month.
(b)
Cheques are distributed 4 times a month.
Interest rate, r = 0.125%
Principal = $250 million every week
Thus, A = $250 million
n=4
F = A [F/A, 0.125%, 4] = (er n 1)/(er 1) = 4.0075
Thus, F = $1,001.88 million
Interest accumulated = $1,877,737 every month

4-107
For a sum of money ($10,000) to triple at a continuous compounding rate of 5% nominal per year:
Let the time corresponding to tripling be t years.
30,000 = 10,000e0.05t
Where, ln 3 = 0.05t (Note: ln is natural logarithm, i.e., logarithm to the base e.)
Or, t = ln 3/0.05 = 21.97 years

4-109
P = $500,000
F = $520,000
n = 6 months
n = 1 installment
Let the nominal interest rate per year be i.
(a)
Effective rate of interest, ei 1 = 8.16%
(b)
The rate for 6 months is i/2.
Then, 520,000 = 500,000 e(i/2)
Or, ln (1.04) = 0.5i
Where, i = 2 ln (1.04)
Nominal rate of interest = 7.84%

4-111
A = 20
i = 0.5% per year, compounded monthly
The deposits start in the 13th month, and go on until the boys 20th birthday, which is the 192nd month.
Thus, n = 192 12 = 180
F/A = [(1 + i)n 1]/i = 290.8187
Thus, F = $5,816.37

4-113
Nominal annual interest rate = 14%
Every quarter, this rate = 3.5%
Every two quarters, this is equivalent to 7.12% effectively.
This is because the interest is compounded quarterly, but the cash flows occur semi-annually.
First cash flow = $1,000 on 1 January 2006
Last cash flow = $1,000 on 1 January 2015
No. of cash flows = 19 (including the first one on 1 January 2006)
Future value F on 1 January 2015 of the cash flows = 1,000 (F/A, 7.12%, 19)
F/A = [(1 + i)n 1]/i = 37.8520 (using the effective semi-annual interest rate 7.12%)
Therefore, F = $37,852.04 on 1 January 2015
Considering quarterly rests, the number of periods between 1 April 2008 and 1 January 2015 is equal to 3 in 2008 plus 6 each from
2009 to 2014 (total = 27).
Thus, we need (P/F, 3.5%, 27) =
0.3950
Therefore, the required value on 1 April 2008 = $14,952

A tabular calculation is shown below. The principal is added every second quarter; interest is calculated at 3.5% on a quarterly basis
and added.
Time
1 Jan. 2006
1 Apr. 2006
1 Jul. 2006
1 Oct. 2006
1 Jan .2007
1 Apr. 2007
1 Jul. 2007
1 Oct. 2007
1 Jan. 2008
1 Apr. 2008
1 Jul. 2008
1 Oct. 2008
1 Jan. 2009
1 Apr. 2009
1 Jul. 2009
1 Oct. 2009
1 Jan. 2010
1 Apr. 2010
1 Jul. 2010
1 Oct. 2010
1 Jan. 2011
1 Apr. 2011
1 Jul. 2011
1 Oct. 2011
1 Jan. 2012
1 Apr. 2012

Principal
1,000.00
1,035.00
2,071.23
2,143.72
3,218.75
3,331.40
4,448.00
4,603.68
5,764.81
5,966.58
7,175.41
7,426.55
8,686.48
8,990.51
10,305.17
10,665.86
12,039.16
12,460.53
13,896.65
14,383.03
15,886.44
16,442.46
18,017.95
18,648.58
20,301.28
21,011.82

Interest
35.00
36.23
72.49
75.03
112.66
116.60
155.68
161.13
201.77
208.83
251.14
259.93
304.03
314.67
360.68
373.30
421.37
436.12
486.38
503.41
556.03
575.49
630.63
652.70
710.54
735.41

Total
1,035.00
1,071.23
2,143.72
2,218.75
3,331.40
3,448.00
4,603.68
4,764.81
5,966.58
6,175.41
7,426.55
7,686.48
8,990.51
9,305.17
10,665.86
11,039.16
12,460.53
12,896.65
14,383.03
14,886.44
16,442.46
17,017.95
18,648.58
19,301.28
21,011.82
21,747.24

1 Jul. 2012
1 Oct. 2012
1 Jan. 2013
1 Apr. 2013
1 Jul. 2013
1 Oct. 2013
1 Jan. 2014
1 Apr. 2014
1 Jul. 2014
1 Oct. 2014
1 Jan. 2015

22,747.24
23,543.39
25,367.41
26,255.27
28,174.20
29,160.30
31,180.91
32,272.24
34,401.77
35,605.83
37,852.04

796.15
824.02
887.86
918.93
986.10
1,020.61
1,091.33
1,129.53
1,204.06
1,246.20

23,543.39
24,367.41
26,255.27
27,174.20
29,160.30
30,180.91
32,272.24
33,401.77
35,605.83
36,852.04

Steps for GOAL SEEK Table:


1. Set up table as below (next page) with an arbitrary value in the green shaded cell (e.g., 5,000).
2. The table has interest calculated every quarter at 3.5%, and added to the total.
3. No fresh principal is added after 1 April 2008, as per the conditions of the problem.
4. The value contained in the yellow-highlighted cell is to be made equal to the value in the pink-highlighted cell by changing the
green-highlighted cell using the GOAL SEEK option.
5. Go to Tools/Goal Seek and set up the conditions as explained above.
6. The green cell converges to a value of 14,952, which matches the previous calculation.

GOAL SEEK TABLE


14,952.00
523.32
15,475.32
541.64
16,016.96
560.59
16,577.55
580.21
17,157.77
600.52
17,758.29
621.54
18,379.83
643.29
19,023.12
665.81
19,688.93
689.11
20,378.05
713.23
21,091.28
738.19
21,829.47
764.03
22,593.50
790.77
23,384.28
818.45
24,202.73
847.10
25,049.82
876.74
25,926.57
907.43
26,833.99
939.19
27,773.18
972.06
28,745.25
1,006.08
29,751.33
1,041.30
30,792.63
1,077.74
31,870.37
1,115.46
32,985.83
1,154.50
34,140.34
1,194.91
35,335.25
1,236.73
36,571.98
1,280.02
37,852.00

15,475.32
16,016.96
16,577.55
17,157.77
17,758.29
18,379.83
19,023.12
19,688.93
20,378.05
21,091.28
21,829.47
22,593.50
23,384.28
24,202.73
25,049.82
25,926.57
26,833.99
27,773.18
28,745.25
29,751.33
30,792.63
31,870.37
32,985.83
34,140.34
35,335.25
36,571.98
37,852.00

4-115
i = 1% per month
A = $2,000
First monthly cash flow on 1 April 2008
Last monthly cash flow on 1 February 2010
n = 23
(F/A, 1%, 23) = 25.716
F = A (F/A, 1%, 23) = $51,432 as on 1 February 2010
The future value of this sum on 1 January 2011, which is 11 months later, is 51,432 (F/P, 1%, 11) = 51,432 1.116 = $57,398.
The number of semi-annual cash flows starting 6 months later, from 1 July 2011 to 1 January 2020 is 18.
Let the values of the semi-annual cash flows be S.
We need to convert 1% monthly into a semi-annual effective rate.
This is given by (1 + 0.01)6 1 = 6.15% (to be used for the factor calculation below)
Then, S = 57,398 (A/P, 6.15%, 18)
(A/P, 6.15, 18) = [i(1 + i)n]/[(1 + i)n 1] = 0.09341
Thus, semi-annual A = $5,362

Vous aimerez peut-être aussi