Problems Answers Appear in Appendix B

EASY PROBLEMS 1-8

(4-1)

Future Value of a

Single Payment

If you deposit $10,000 in a bank account that pays 10% interest annually, how much

will be in your account after 5 years?

(4-2)

Present Value of a

Single Payment

What is the present value of a security that will pay $5,000 in 20 years if securities of

equal risk pay 7% annually?

Future Value: Ordinary

Annuity versus Annuity

Due

What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year?

If this were an annuity due, what would its future value be?

Present and Future

Values of Single Cash

Flows for Different

Periods

Find the following values, using the equations, and then work the problems using a

financial calculator to check your answers. Disregard rounding differences. (Hint:

If you are using a financial calculator, you can enter the known values and then

press the appropriate key to find the unknown variable. Then, without clearing

the TVM register, you can "override" the variable that changes by simply entering

a new value for it and then pressing the key for the unknown variable to obtain

the second answer. This procedure can be used in parts b and d, and in

many other situations, to see how changes in input variables affect the output

variable.)

a. An initial $500 compounded for 1 year at 6%

b. An initial $500 compounded for 2 years at 6%

c. The present value of $500 due in 1 year at a discount rate of 6%

d. The present value of $500 due in 2 years at a discount rate of 6%

Future Value of an

Annuity

Find the future value of the following annuities. The first payment in these annuities

is made at the end of Year 1, so they are ordinary annuities. (Notes: See the Hint to

Problem 4-9. Also, note that you can leave values in the TVM register, switch to Begin

Mode, press FV, and find the FV of the annuity due.)

a. $400 per year for 10 years at 10%

b. $200 per year for 5 years at 5%

c. $400 per year for 5 years at 0%

d. Now rework parts a, b, and c assuming that payments are made at the beginning

of each year; that is, they are annuities due.

166 Part 2: Fixed Income Securities

9781133665007, Financial Management: Theory and Practice, Michael C. Ehrhardt - © Cengage Learning.

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Present Value of an

Annuity

Find the present value of the following ordinary annuities (see the Notes to Problem 4-12).

a. $400 per year for 10 years at 10%

b. $200 per year for 5 years at 5%

c. $400 per year for 5 years at 0%

d. Now rework parts

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