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CHAPTER 10 Answer
CHAPTER 10 Answer
CHAPTER 10 Answer
CHAPTER 10
I. Questions
3. Money has a time value because funds received today can be reinvested
to reach a greater value in the future. A person would rather receive ₱1
today than ₱1 in ten years, because a peso invested today, invested at 6
percent is worth ₱1.791 after ten years.
4. Inflation makes a peso today worth more than a peso in the future.
Because inflation tends to erode the purchasing power of money, funds
received today will be worth more than the same amount received in the
future.
5. The greater the number of compounding periods, the larger the future
value. The investor should choose daily compounding over monthly or
quarterly.
10-1
Chapter 10 The Time Value of Money
PV = FVn (PVIFi,n)
FVn = PV (FVIFi,n)
PV = FVn (PVIFi,n)
FVOAn = A (FVIFAi,n)
10-2
The Time Value of Money Chapter 10
PV = FVn (PVIFi,n)
b. PV = FVn (PVIFi,n)
a. PV = FVn (PVIFi,n)
b. A = FVOAn ÷ FVIFAi,n
FVOAn = A (FVIFAi,n)
10-3
Chapter 10 The Time Value of Money
If the sum is doubling, then the tabular value must equal to 2. In Table 1,
looking down the 8% column, we find the factor closest to 2 (1.999) on the
9-year row. The factor closest to 3 (2.937) is on the 14-year row.
PV = FVn (PVIFi,n)
PV = FVn (PVIFi,n)
10-4
The Time Value of Money Chapter 10
Rewrite the Equation PVOA n = A (PVIFA i,n) to solve for the interest rate.
Dividing both sides of the equation by A gives a new equation: PVIFA i,n =
PVOA n ÷ A. Now, solve the new equation as follows:
Look up PVIFA of 3.889 for six years in Table 4 and the result is an interest
rate of 14 percent.
FVIFi,n = FVn ÷ PV
Look up the value of i for an FVIF of 2.839 in Table 1 for ten years and the
result is an annual compound growth rate of 11 percent.
1. C 6. B 11. A
2. C 7. C 12. D
3. C 8. A 13. B
4. C 9. B 14. A
5. D 10. D 15. A
10-5