ENGR.ECONOMY CUSTOM FOR TAMU ISEN 667
ENGR.ECONOMY CUSTOM FOR TAMU ISEN 667
8th Edition
ISBN: 9781307584394
Author: Blank
Publisher: MCG/CREATE
Question
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Chapter 2, Problem 25P

(1):

To determine

Calculate present value factor to the future value.

(1):

Expert Solution
Check Mark

Explanation of Solution

Option (a):

Interest rate (i) is 8.4% and time period (n) is 15.

The present value factor to the future value (PF) through linear interpolate can be calculated as follows. The interest rate lies between (i1) 8% and (i2) 9%.

PF=1(1+i1)n((ii1)100(i2i1)100(1(1+i1)n1(1+i2)n))=1(1+0.08)15((0.0840.08)100(0.090.08)100(1(1+0.08)151(1+0.09)15))=13.1722((0.004)100(0.01)100(13.172213.6425))=0.3152(0.41(0.31520.2745))=0.3152(0.4(0.0407))=0.3152(0.0163)=0.2989

The present value factor to the future value is 0.2989.

Option (b):

The present value factor to the future value (PF) through formula can be calculated as follows:

PF=1(1+i)n=1(1+0.084)15=13.35304=0.2982

The present value factor to the future value is 0.2982.

Option (c):

The present value factor to the future value (PF) through spreadsheet can be done as follows:

=-PV(i,n,,1)

=-PV(8.4%,15,,1) This function gives the value of 0.29824.

(2):

To determine

Calculate equivalent annual value factor to the future value.

(2):

Expert Solution
Check Mark

Explanation of Solution

Option (a):

Interest rate (i) is 17% and time period (n) is 10.

The equivalent annual value factor to the future value (AF) through linear interpolate can be calculated as follows. The interest rate is lies between (i1) 16% and (i2) 18%.

AF=i1(1+i1)n1((ii1)100(i2i1)100(i1(1+i1)-11i2(1+i2)n1))=0.16(1+0.16)101((0.170.16)100(0.180.16)100(0.16(1+0.16)1010.18(1+0.18)101))=0.164.41141((0.01)100(0.02)100(0.164.411410.185.23381))=0.0469(12(0.046900.04251))=0.0469(0.5(0.00439))=0.0469(0.0022)=0.0447

The equivalent value factor to the future value is 0.0447.

Option (b):

The equivalent annual value factor to the future value (AF) through formula can be calculated as follows:

AF=i(1+i)n1=0.17(1+0.17)101=0.174.80681=0.04466

The present value factor to the future value is 0.04466.

Option (c):

The equivalent annual value factor to the future value (AF) through spreadsheet can be done as follows:

=-PMT(i,n,,1)

=-PMT(17%,10,,1) This function gives the value of 0.04466.

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Chapter 2 Solutions

ENGR.ECONOMY CUSTOM FOR TAMU ISEN 667

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