Name: Kenisha Manicksingh

Student ID: 2022071

Chapter 6 Review Solutions

1. CF0 = 100
C01 = 200
F01 = 3
C02 = 150
F02 = 2
I=7
NPV = 846.25

2. PV = 846.25
N=5
I/Y = 7
FV = 1,186.90

3. Option 1 = CF0 = 500, C01 = 100, F01 = 6, I = 5%

NPV = 1007.6

Option 2 = CF0 = 500, C01 = 50, F01 = 12, I = 5%

NPV = 943.16

Option 3 = 1,000; therefore option 1 will give highest PV

4. PV = C [1 – 1/(1 + r)t / r]
= 1,000 [1 – 1/(1 + 0.07)20 / 0.07
= 1,000 [ 1 – 1/1.14]
= 1,000 [ 1 – 0.88 / 0.07]
= 1,000 x 1.71 = 1,710.00

5. PV = 200,000, I/Y = 0.58, N = 144, PMT = 2056.7

6. First, calculate EAR:

EAR = [1 + APR]m - 1
m
= (1.02)² = 1.03 – 1 = 0.03

Second, calculate effective monthly rate:

= 12 (1 + 0.03)1/12 – 1
= 12 (0.09) – 1
= 0.03 or 3%

Third, calculate monthly payment

500,000 = C/0.03 [1 – 1/1.03]300
C = 1,806.76
7. PMT = 1000
N = 1300
PV = 675,000
I/Y = 0.11
RATE OF RETURN = 0.11 X 52 = 5.72%