Student: You should work the problem completely before referring to the solution.
CHAPTER 1
Solutions included for problems 1, 4, 7, 10, 13, 16, 19, 22, 25, 28, 31, 34, 37, 40,
43, 46, and 49
1.1 Time value of money means that there is a certain worth in having money and the worth changes as a function of time.
1.4 Nearest, tastiest, quickest, classiest, most scenic, etc
1.7 Minimum attractive rate of return is the lowest rate of return (interest rate) that companies or individuals consider to be high enough to induce them to invest their money.
1.10 Rate of increase = [(29 – 22)/22]*100 = 31.8%
1.13 Profit = 8 million*0.28 = $2,240,000
1.16 (a) Equivalent future amount = 10,000 + 10,000(0.08) = 10,000(1 + 0.08) = $10,800
(b) Equivalent past amount: P + 0.08P = 10,000 1.08P = 10,000 P = $9259.26
1.19 80,000 + 80,000(i) = 100,000 i = 25%
1.22 Simple: 1,000,000 = 500,000 + 500,000(i)(5) i = 20% per year simple
Compound: 1,000,000 = 500,000(1 + i)5 (1 + i)5 = 2.0000 (1 + i) = (2.0000)0.2 i = 14.87%
1.25 Plan 1: Interest paid each year = 400,000(0.10) = $40,000
Total paid = 40,000(3) + 400,000 = $520,000
Plan 2: Total due after 3 years = 400,000(1 + 0.10)3 = $532,400
Difference paid = 532,400 – 520,000 = $12,400
1.28 (a) FV(i%,n,A,P) finds the future value, F (b)