Chapter 5, Solutions Cornett, Adair, and Nofsinger

5-2. Solving for PMT will yield the amount needed to pay the credit card off in the time frame you desire, assuming that no additional charges are made to the credit card and that the interest rate remains level.

Problems

Basic

Problems5-1 Future Value Compute the future value in year 8 of a $1,000 deposit in year 1 and

LG1 another $1,500 deposit at the end of year 3 using a 10% interest rate.

Use equation 5-1:

FV = $1,000 × (1 + 0.10)7 + $1,500× (1 + 0.10)5 = $1,948.72 + $2,415.77 = $4,364.48

LG15-2 Future Value Compute the future value in year 7 of a $2,000 deposit in year 1 and another $2,500 deposit at the end of year 4 using a 8% interest rate..

Use equation 5-1:

FV = $2,000 × (1 + 0.08)6 + $2,500 × (1 + 0.08)3 = $3,173.75 + $3,149.28 = $6,323.03

LG25-3 Future Value of an Annuity What is the future value of a $500 annuity payment over 5 years if interest rates are 9 percent?

Use equation 5-2:

LG25-4 Future Value of an Annuity What is the future value of a $700 annuity payment over 4 years if interest rates are 10 percent?

Use equation 5-2:

LG35-5 Present Value Compute the present value of a $1,000 deposit in year 1 and another $1,500 deposit at the end of year 3 if interest rates are 10 percent.

Use equation 5-3:

PV = $1,000 ÷ (1 + 0.10)1 + $1,500 ÷ (1 + 0.10)3 = $909.09 + $1,126.97 = $2,036.06

LG35-6 Present Value Compute the present value of a $2,000 deposit in year 1 and another $2,500 deposit at the end of year 4 using an 8% interest rate.