Type:
Solution Manual
Resource:
Financial Accounting in an Economic Context
Edition:
8th Edition
Author(s):
Jamie Pratt
APPENDIX A THE TIME VALUE OF MONEY EXERCISES EA–1 Time Periods (Years) Compound Interest Rates
5
10
15
5%
$150 1.27628 = $191.44
$150 1.62889 = $244.33
$150 2.07893 = $311.84
10%
$150 1.61051 = $241.58
$150 2.59374 = $389.06
$150 4.17725 = $626.59
15%
$150 2.01136 = $301.70
$150 4.04556 = $606.83
$150 8.13706 = $1,220.56
EA–2 Time Periods (Years) Compound Interest Rates
5
10
15
5%
$10,000 = $7,835.26 1.05^5
$10,000 = $6,139.15 1.05^10
$10,000 = $4,810.17 1.05^15
10%
$10,000 = $6,209.21 1.10^5
$10,000 = $3,855.44 1.10^10
$10,000 = $2,393.92 1.10^15
15%
$10,000 = $4,971.76 1.15^5
$10,000 = $2,471.85 1.15^10
$10,000 = $1,228.94 1.15^15
The above problem has also been attempted in an alternate way to demonstrate the use of formulas.
1
EA–3 Time Periods (Years) Compound Interest Rates
5
10
15
5%
$150 5.52563 = $828.84
$150 12.57789 = $1,886.68
$150 21.57856 = $3,236.78
10%
$150 6.10510 = $915.77
$150 15.93743 = $2,390.61
$150 31.77248 = $4,765.87
15%
$150 6.74238 = $1,011.36
$150 20.30372 = $3,045.56
$150 47.58041 = $7,137.06
EA–4 Time Periods (Years) Compound Interest Rates
5
10
15
5%
$150 5.80191 = $870.29
$150 13.20679 = $1,981.02
$150 22.65749 = $3,398.62
10%
$150 6.71561 = $1,007.34
$150 17.53117 = $2,629.68
$150 34.94973 = $5,242.46
15%
$150 7.75374 = $1,163.06
$150 23.34928 = $3,502.39
$150 54.71747 = $8,207.62
EA–5 Time Periods (Years) Compound Interest Rates
5
10
15
5%
$10,000 4.32948 = $43,294.80
$10,000 7.72173 = $77,217.30
$10,000 10.37966 = $103,796.60
10%
$10,000 3.79079 = $37,907.90
$10,000 6.14457 = $61,445.70
$10,000 7.60608 = $76,060.80
15%
$10,000 3.35216 = $33,521.60
$10,000 5.01877 = $50,187.70
$10,000 5.84737 = $58,473.70
2
EA–6 Time Periods (Years) Compound Interest Rates
5
10
15
5%
$10,000 4.54595 = $45,459.50
$10,000 8.10782 = $81,078.20
$10,000 10.89864 = $108,986.40
10%
$10,000 4.16987 = $41,698.70
$10,000 6.75902 = $67,590.20
$10,000 8.36669 = $83,666.90
15%
$10,000 3.85498 = $38,549.80
$10,000 5.77158 = $57,715.80
$10,000 6.72448 = $67,244.80
EA–7 a. ($50 .85734) + ($100 .68058) = $42.87 + $68.06 = $154.15 b. ($100 3.31213) = $331.21 = $385.24 c.
+ +
($100 .54027) $54.03
($60 .68058) + ($60 .63017) = $40.83 + $37.81 = $192.39
d. ($90 .58349) = $52.51 = $146.15
+ ($80 .54027) + $43.22
+ ($60 .58349) + ($60 .54027) + + $35.01 + $32.42 +
+ ($90 .54027) + ($90 .50025) + $48.62 +
($100 .46319) $46.32
$45.02
EA–8 a. ($50 .85734) + = $42.87 = $157.61
($100 .68058) + $68.06
b. ($100 3.57710) = $357.71 = $416.06
+ +
c.
+ +
($80 .58349) $46.68
($60 .73503) + ($60 .68058) + ($60 .63017) + = $44.10 + $40.83 + $37.81 = $207.78
($60 .58349) + $35.01
($100 .58349) $58.35
d. ($90 .63017) + ($90 .58349) = $56.72 + $52.51 = $157.85
+ ($90 . 54027) + $48.62
3
+ ($100 .50025) + $50.03
EA–9 a. Dollar amount
= $25,000 Future value factor for i = 10% and n = 4 = $25,000 1.46410 (from Table 1) = $36,603
Dollar amount
= $36,603 Future value factor for i = 12% and n = 3 = $36,603 1.40493 (from Table 1) = $51,425
Dollar amount
= $51,425 Future value factor for i = 15% and n = 5 = $51,425 2.01136 (from Table 1) = $103,434
b. Ben should not accept $36,000 for $25,000 at the end of 4 years. Why not? Because if he invests the initial $25,000 at 10 percent per annum compounded annually, he will have a total of $36,603, $603 more than the amount the person offered him.
EA–10 a. Dollar amount
= ($40,000 Present value factor for an ordinary annuity factor for i = 10% and n = 10) + ($500,000 Present value factor for i = 10% and n = 10) = ($40,000 6.14457 from Table 5) + ($500,000 .38554 from Table 4) = $245,782.80 + $192,770.00 = $438,552.80
b. There are two different ways to calculate the dollar amount. The two ways are shown below. Dollar amount
= ($40,000 Present value factor for an annuity due for i = 10% and n + ($500,000 Present value factor for i = 10% and n = 10) = ($40,000 6.75902 from Table 6) + ($500,000 .38554 from Table 4) = $270,360.80 + $192,770.00 = $463,130.80
Dollar amount
= $40,000 + ($40,000 Present value factor for an ordinary annuity factor for i = 10% and n = 9) + ($500,000 Present value factor for i = 10% and n = 10) = $40,000 + ($40,000 5.75902 from Table 5) + ($500,000 .38554 from Table 4) = $40,000 + $230,360.80 + $192,770.00 = $463,130.80
4
= 10)