Homework Chapter 1

Some important things to note before starting the homework. As noted in the lecture slides, the formulas
for these calculations are incorrect in some parts of the book. Please refer to the formulas below when
solving the problems. For example, the formulas at the top of the exhibit tables (1B) for annuities (1B-2
and 1B-4) are missing the annuity (PMT). The same is the case for the section Key Formulas on page
28. For your reference the formulas and corresponding factor tables:
Future value of a lump sum (FVIF): Exhibit 1B-1

FVLumpsum PV (1 k ) n

Future value of an annuity (FVIFA): Exhibit 1B-2

((1 i ) n 1)
FVAnnuity PMT
i

Present value of a lump sum (PVIF): Exhibit 1B-3

1
PVLumpsum FV ( )
(1 i ) n

Present value of an annuity (PVIFA): Exhibit 1B-4

1
(1 )
(1 i ) n
PVAnnuity PMT
i

Financial Planning Problems (FPP), pages 29-30:

#1, 4, 6, 7, 10, 12 and 14
Financial Planning Activities (FPA), pages 29-30:
#6: Use library resources or Web sites to determine recent trends in interest rates, inflation, and other
economic indicators. Information about the consumer price index (measuring changes in the cost of
living) may be obtained at statcan.ca. Report how this economic information might affect your financial
planning decisions. More specifically, How do higher consumer prices and interest rates affect the
financial situation and decisions of people in our society?
#7: There are many different types of financial planners and differences in how they are paid. Consider
the following two statements. What could you do to compare these services? Is financial planning ever
really free?
Statement 1: One Low Fee Is Charged to Develop Your Personal Financial Plan
Statement 2: You Are Not Charged a Fee, My Services Are Covered by the Company for Which I Work.