Chapter 5, Solutions Cornett, Adair, and Nofsinger

Use equation 5-7:

PVA6 due = 8,500 × (1 +0.095) = $9,307.50

LG65-13 Future Value of an Annuity Due If the future value of an ordinary, 7-year annuity is $6,500 and interest rates are 8.5 percent, what is the future value of the same annuity due?

Use equation 5-6:

FVA7 due = 6,500 × (1 + 0.085) = $7,052.50

(Note this is the same answer as problem 5-11, as expected)

LG65-14 Future Value of an Annuity Due If the future value of an ordinary, 6-year annuity is $8,500 and interest

rates are 9.5 percent, what’s the future value of the same annuity due?

Use equation 5-6:

FVA6 due = 8,500 × (1 + 0.095) = $9,307.50

(Note this is the same answer as problem 5-12, as expected)

LG75-15 Effective Annual Rate A loan is offered with monthly payments and an 11 percent APR. What’s the loan’s effective annual rate (EAR)?

Use equation 5-8:

LG75-16 Effective Annual Rate A loan is offered with monthly payments and a 12 percent APR. What’s the loan’s effective annual rate (EAR)?

Use equation 5-8:

Intermediate

Problems5-17 Future Value Given a 6 percent interest rate, compute the year 6 future value of deposits made in years 1, 2, 3, and 4 of $1,000, $1,200, $1,200, and $1,500.

LG1

Use equation 5-1: