Problem Set Solutions for Selected Problems from
Chapter 4 - Financial Management by Brigham &
Ehrhardt
4-3 0 I/YR = ? 18
| |
PV = 250,000 FV18 = 1,000,000
With a financial calculator enter the following: N = 18, PV = -250000, PMT = 0, and FV
= 1000000. Solve for I/YR = 8.01% ≈ 8%.
4-4 0 6.5% N=?
| |
PV = 1 FVN = 2
$2 = $1(1.065)N.
With a financial calculator enter the following: I/YR = 6.5, PV = -1, PMT = 0, and FV =
2. Solve for N = 11.01 ≈ 11 years.
4-5 0 12% 1 2 N–2 N–1 N
| | | | | |
PV = 42,180.53 5,000 5,000 5,000 5,000 FV = 250,000
Using your financial calculator, enter the following data: I/YR = 12; PV = -42180.53;
PMT = -5000; FV = 250000; N = ? Solve for N = 11. It will take 11 years to accumulate
$250,000.
4-12
a. 0 10% 1 2 3 4 5 6 7 8 9 10
| | | | | | | | | | |
400 400 400 400 400 400 400 400 400 400
FVA10 = ?
With a financial calculator, enter N = 10, I/YR = 10, PV = 0, and PMT = -400. Then
press the FV key to find FV = $6,374.97.
b. 5%
0 1 2 3 4 5
| | | | | |
200 200 200 200 200
FVA5 = ?
With a financial calculator, enter N = 5, I/YR = 5, PV = 0, and PMT =
-200. Then press the FV key to find FV = $1,105.13.
0%
c. 0 1 2 3 4 5
| | | | | |
400 400 400 400 400
FVA5 = ?
With a financial calculator, enter N = 5, I/YR = 0, PV = 0, and PMT =
-400. Then press the FV key to find FV = $2,000.
d. To solve Part d using a financial calculator, repeat the procedures discussed in Parts a,
b, and c, but first switch the calculator to "BEG" mode. Make sure you switch the
calculator back to "END" mode after working the problem.
10%
(1) 0 1 2 3 4 5 6 7 8 9 10
| | | | | | | | | | |
400 400 400 400 400 400 400 400 400 400 FVA10 = ?
With a financial calculator set to “BEG” mode, enter N = 10, I/YR = 10, PV = 0, and
PMT = -400. Then press the FV key to find FV = $7,012.46.
(2) 0 5% 1 2 3 4 5
| | | | | |
200 200 200 200 200 FVA5 = ?
With a financial calculator set to “BEG” mode, enter N = 5, I/YR = 5, PV = 0, and
PMT = -200. Then press the FV key to find FV = $1,160.38.
(3) 0 0% 1 2 3 4 5
| | | | | |
400 400 400 400 400 FVA5 = ?
With a financial calculator set to “BEG” mode, enter N = 5, I/YR = 0, PV = 0, and
PMT =
-400. Then press the FV key to find FV = $2,000.
4-13
a. 0 10% 1 2 3 4 5 6 7 8 9 10
| | | | | | | | | | |
PV = ? 400 400 400 400 400 400 400 400 400 400
With a financial calculator, enter N = 10, I/YR = 10, PMT = -400, and FV = 0. Then
press the PV key to find PV = $2,457.83.
b. 0 5% 1 2 3 4 5
| | | | | |
PV = ? 200 200 200 200 200
With a financial calculator, enter N = 5, I/YR = 5, PMT = -200, and FV = 0. Then
press the PV key to find PV = $865.90.
c. 0 1 2 3 4 5
| | | | | | $400(5) = $2,000.00.
PV = ? 400 400 400 400 400
With a financial calculator, enter N = 5, I/YR = 0, PMT = -400, and FV = 0. Then
press the PV key to find PV = $2,000.
d. (1) 0 1 2 3 4 5 6 7 8 9 10
| | | | | | | | | | |
400 400 400 400 400 400 400 400 400 400
PV = ?
With a financial calculator set to “BEG” mode, enter N = 10, I/YR = 10, PMT =
-400, and FV = 0. Then press the PV key to find PV = $2,703.61.
(2) 0 5% 1 2 3 4 5
| | | | | |
200 200 200 200 200
PV = ?
With a financial calculator set to “BEG” mode, enter N = 5, I/YR = 5, PMT =
-200, and FV = 0. Then press the PV key to find PV = $909.19.
(3) 0 0% 1 2 3 4 5
| | | | | |
400 400 400 400 400
PV = ?
With a financial calculator set to “BEG” mode, enter N = 5, I/YR = 0, PMT =
-400, and FV = 0. Then press the PV key to find PV = $2000.00.
4-15 These problems can all be solved using a financial calculator by entering the known
values shown on the time lines and then pressing the I/YR button.
a. 0 1
| I=? |
+700 -749
With a financial calculator, enter N = 1, PV = 700, PMT = 0, and FV = -749. Then
press the I/YR key to find I/YR = 7%.
b. 0 I=? 1
| |
-700 +749
With a financial calculator, enter N = 1, PV = -700, PMT = 0, and FV = 749. Then
press the I/YR key to find I/YR = 7%.
c. 0 I=? 10
| |
+85,000 -201,229
With a financial calculator, enter N = 10, PV = 85,000, PMT = 0, and FV = -201,229.
Then press the I/YR key to find I/YR = 9%.
d. 0 I=? 1 2 3 4 5
| | | | | |
+9,000 -2,684.80 -2,684.80 -2,684.80 -2,684.80 -2,684.80
With a financial calculator, enter N = 5, PV = 9,000, PMT = -2,684.8, and FV = 0.
Then press the I/YR key to find I/YR = 15%.
4-16 a. 0 12% 1 2 3 4 5
| | | | | |
-500 FV = ?
With a financial calculator, enter N = 5, I/YR = 12, PV = -500, and PMT = 0, and
then press FV to obtain FV = $881.17.
b. 0 6%1 2 3 4 5 6 7 8 9 10
| | | | | | | | | | |
-500 FV = ?
With a financial calculator, enter N = 10, I/YR = 6, PV = -500, and PMT = 0, and
then press FV to obtain FV = $895.42.
c. 0 4 8 12 16 20
| 3% | | | | |
-500 FV = ?
With a financial calculator, enter N = 20, I/YR = 3, PV = -500, and PMT = 0, and
then press FV to obtain FV = $903.06.
d. 0 1% 12 24 36 48 60
| | | | | |
-500 FV = ?
With a financial calculator, enter N = 60, I/YR = 1, PV = -500, and PMT = 0, and
then press FV to obtain FV = $908.35.
4-17 a. 0 2 4 6 8 10
| 6% | | | | |
PV = ? 500
With a financial calculator, enter N = 10, I/YR = 6, PMT = 0, and FV = -500. Then
press the PV key to find PV = $279.20.
Alternatively,
mn
2 (5)
1
i 1
1
PV = FVn m =
$500 1 0.12
2
10
= $500
1
= $500(PVIF6%, 10) = $500(0.5584) = $279.20.
1.06
b. 0 4 8 12 16 20
| 3% | | | | |
PV = ? 500
With a financial calculator, enter N = 20, I/YR = 3, PMT = 0, and FV = -500. Then
press the PV key to find PV = $276.84, or
4 ( 5)
20
= $500
1 1
PV = $500 0.12
= $276.84.
1 1.03
4
c. 0 1 2 12
| 1% | | |
PV = ? 500
With a financial calculator, enter N = 12, I/YR = 1, PMT = 0, and FV = -500. Then
press the PV key to find PV = $443.72, or
12(1)
1
PV = $500 0.12
1
12
12
= $500
1
= $500(1.01)-12 = $443.72.
1.01
4-21 a. 0 I=? 1 2 3 4 5
| | | | | |
-6 12 (in millions)
With a calculator, enter N = 5, PV = -6, PMT = 0, FV = 12, and then solve for I/YR =
14.87% ≈ 15%.
b. The calculation described in the quotation fails to take account of the compounding
effect. It can be demonstrated to be incorrect as follows:
$6,000,000(1.20)5 = $6,000,000(2.4883) = $14,929,800,
which is greater than $12 million. Thus, the annual growth rate is less than 20
percent; in fact, it is about 15 percent, as shown in Part a.
4-25 0 1 2 ?
| 9% | | |
12,000 -1,500 -1,500 -1,500
With a calculator, enter I/YR = 9, PV = 12000, PMT = -1500, and FV = 0. Press N to get
N = 14.77 15 years. Therefore, it will take approximately 15 years to pay back the loan.
