Q1: The treasurer of ABC Imports expects to invest $100,000 of

the firm's funds in a long-term investment vehicle at the

beginning of each year for the next five years. He expects that
the company will earn 8% interest that will compound annually.
The value that these payments should have at the end of the
five-year period is calculated as:

GIVEN:

C.F =$100,000
n=5

m
i = 8%

er as
co
eH w
REQUIRED:
F.V.AD =?

o.
SOLUTION: rs e
ou urc
F.V.AD = C.F [{(1+i)n+1-1}/i-1]
o
aC s

F.V.AD = 100,000 [{(1+0.08) 5+1-1}/0.08-1]

vi y re

F.V.AD = 100,000 [{(1.08) 6-1}/0.08-1]

ed d

F.V.AD = 100,000 [{1.5868-1}/0.08-1]

ar stu

F.V.AD = 100,000 [0.5868/0.08-1]

is
Th

F.V.AD = 100,000 [7.3359-1]

F.V.AD = 100,000 (6.3359)

sh

F.V.AD = 633592.9037

This study source was downloaded by 100000830574703 from CourseHero.com on 08-22-2021 12:24:27 GMT -05:00

https://www.coursehero.com/file/67851311/business-finance-dcisiondocx/
 Q2: ABC International is paying a third party $ 50,000 at the
beginning of each year for the next eight years in exchange for
the rights to a key patent. What would it cost ABC if it were to
pay the entire amount immediately, assuming an interest rate
of 6%? The calculation is:

GIVEN:

C.F =$50,000
n=8

m
i = 6%

er as
co
eH w
REQUIRED:

o.
P.V.AD =? rs e
ou urc
SOLUTION:
o

P.V.AD = C.F [{1-(1+i)-n+1}/i+1]

aC s
vi y re

P.V.AD = 50,000 [{1-(1+0.06) -8+1}/0.06+1]

ed d

P.V.AD = 50,000 [{1-(1.06) -8+1}/0.06+1]

ar stu

P.V.AD = 50,000 [{1-0.6650}/0.06+1]

is

P.V.AD = 50,000 [{0.335/0.06}+1]

Th

P.V.AD = 50,000 [5.5833+1]

sh

P.V.AD = 50,000 [6.5833]

P.V.AD = 329166.6667

This study source was downloaded by 100000830574703 from CourseHero.com on 08-22-2021 12:24:27 GMT -05:00

https://www.coursehero.com/file/67851311/business-finance-dcisiondocx/
 Q3: A console bond is a bond that has no maturity and pays a
fixed coupon. Assume that you have a $80 coupon console bond.
The value of this bond, if the interest rate is 9%, is as follows -
Value of Console?

GIVEN:

m
C.F =$80

er as
i = 9%

co
eH w
o.
REQUIRED:
rs e
ou urc
P.V.P =?

SOLUTION:
o
aC s

P.V.P =C.F/i
vi y re

P.V.P =80/0.09
ed d

P.V.P =888.8888
ar stu
is
Th
sh

This study source was downloaded by 100000830574703 from CourseHero.com on 08-22-2021 12:24:27 GMT -05:00

https://www.coursehero.com/file/67851311/business-finance-dcisiondocx/
 m
er as
co
eH w
o.
rs e
ou urc
o
aC s
vi y re
ed d
ar stu
is
Th
sh

This study source was downloaded by 100000830574703 from CourseHero.com on 08-22-2021 12:24:27 GMT -05:00

https://www.coursehero.com/file/67851311/business-finance-dcisiondocx/
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