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ID: LAM134
Semester: Spring 2012
Subject: FIN511
1) The following are exercises in future (terminal) values:
a) At the end of three years, how much is an initial deposit of $100 worth,
assuming a compound annual interest rate of (i) 100 percent? (ii) 10 percent?
(iii) 0 percent?
(i) 100 percent?
FV = PV (1+i) ^n = 100(1+100%) ^3 = $800
(ii) 10 percent?
FV = PV (1+i) ^n = 100(1+10%) ^3 = $133
(iii) 0 percent
FV = PV (1+i) ^n = 100(1+0%) ^3 = $100
b) At the end of five years, how much is an initial $ 500 deposit followed by five
year-end, annual $ 100 payment worth, assuming a compound annual interest
rate of (i) 10 Percent? (ii) 5 percent? (iii) 0 percent?
(i) 10 Percent?
FV = 500/(1+10%)^0 + 100/(1+10%)^1 + 100/(1+10%)^2 + 100/(1+10%)^3
+100/(1+10%)^4 + 100/(1+10%)^5 = $1,416
(ii) 5 percent?
FV = 500/(1+5%)^0 + 100/(1+5%)^1 + 100/(1+5%)^2 + 100/(1+5%)^3 +100/(1+5%)^4
+ 100/(1+5%)^5 = $1,190
(iii) 0 percent
FV = 500/(1+0%)^0 + 100/(1+0%)^1 + 100/(1+0%)^2 + 100/(1+0%)^3 +100/(1+0%)^4
+ 100/(1+0%)^5 = $1,000
c) At the end of six years, how much is an initial $ 500 deposit followed by five
year-end, annual $ 100 payment worth, assuming a compound annual interest
rate of (i) 10 percent? (ii) 3 percent? (iii) 0 percent?
(i) 10 Percent?
FV = 500/(1+10%)^0 + 100/(1+10%)^1 + 100/(1+10%)^2 + 100/(1+10%)^3
+100/(1+10%)^4 + 100/(1+10%)^5 + 100/(1+10%)^6= $1,657
(ii) 3 percent?
FV = 500/(1+3%)^0 + 100/(1+3%)^1 + 100/(1+3%)^2 + 100/(1+3%)^3 +100/(1+3%)^4
+ 100/(1+3%)^5 + 100/(1+3%)^6= $1,244
(iii) 0 percent