1.

Fund 1 after 10 years

X(1.06)10
Fund 2 after 10 years
X
(1 − d)−10
2
Amount of interest earned over 10 years is equal
X X
X(1.06)10 − X = (1 − d)−10 −
2 2
d = .09049

2.

600v 10 = 100 + 200v n + 300v 2n

600v 10 = 100 + 200(0.76) + 300(0.76)2

v 10 = 0.7088

i = 0.035

3.

PV(option 1) = PV(option 2)

432v + 300v 2 = 82.56 + 250v + 400v 2

0 = 100v 2 − 182v + 82.56

√
182 ± 1822 − 4(100)(82.56)
v=
2(100)
v = 0.96 or 0.86
i = 0.042 or 0.163

Therefore the answer is either A or B. Check i = 0.10

PV(option 1) = 640.66
PV(option 2) = 640.41

Thus at i = 0.10 PV(option 1) > PV(option 2) and the answer is B .

4.
200 100
n
+ = 200
(1 + i) (1 + i)2n

TIA FM A.1.3 Solutions

mult. by (1 + i)2n :

200(1 + i)n + 100 = 200(1 + i)2n

2(1 + i)2n − 2(1 + i)n − 1 = 0

√
−(−2) ±4 − 4(2)(−1)
(1 + i)n =
4
√ √
n 2±2 3 1± 3
(1 + i) = =
4 2

(1 + i)n can not be negative so

√
n 3+1
(1 + i) =
2
√ 1
3+1 n
1+i=( )
2
√ 1
3+1 n
i= ( ) −1
2

TIA FM A.1.3 Solutions