Solutions

avec *
Chapitre 3

$3.1* For Bank A:

r = 15%, M = 4, ia = (1 + 15%/4)4 1 = 15.865%

For Bank B:
r = 14.8%, M = 365, ia = (1 + 14.8%/365)365 1 = 15.948%

Statement (c) is incorrect because Bank B charges a higher annual
effective interest rate.

$3.2* N = 4 X 10 = 40 quarters
A = $2,500
iq = (1 + 9%/12)3 1 = 2.267% per quarter
F = $2,500 (F/A, 2.2669%, 40) = $160,058

$3.3* im = 9%/12 = 0.75% per month
N = 60 months
N n = 60 24 = 36 months
A = $10,000(A/P, 0.75%, 60) = $208
B24 = A(P/A, 0.75%, 36) = $6,541

$3.4* Option 1:
iq = 6%/4 = 1.5% per quarter
N1 = 4 X 10 = 40 quarters
N2 = 4 X 15 = 60 quarters
F1 = $1,000(F/A, 1.5%, 40)(F/P, 1.5%, 60) = $132,588
Option 2:
ia = (1 + 6%/4)4 1 = 6.136%
F2 = $6,000(F/A, 6.136%, 15) = $141,111
F2 F1 = $8,523
Statement (b) is correct.

$3.5* P = $18,000 $3,000 = $15,000

N = 36 months
r = 6.25%, M = 12
im = 6.25%/12 = 0.5208%
The monthly payment A = $15,000(A/P, 0.5208%, 36).
Statement (c) is correct.

3.6* N = 6 months
i = (1 + ia)1/2 1 = (1 + 12%)1/2 1 = 5.83% semiannually.
P = $1,000(P/A, 5.83%, 6) = $4,944
3.7* F = 2P, N = 5 years
F = P(F/P, ia, 5) = 2P
(F/P, ia, 5) = 2, ia = 14.87% per year
iq = (1 + ia)1/4 1 = (1 + 14.87%)1/4 1 = 3.526% per quarter
r = iq X 4 = 14.11% compounded quarterly

3.8* r = 9%, M = 12
iq = (1 + 9%/12)3 1 = 2.2669% per quarter, N = 3 X 4 = 12 quarters
F = $1,000(F/A, 2.2669%, 12) = $13,615.

$3.9* M = 12, im = 1.8% per month
ia = (1 + 1.8%)12 1 = 23.87%
3.10* r = 8%, K = 4 payment periods per year
iq = er/K 1 = e8%/4 1 = 2.02% per quarter
N = 5 X 4 = 20 quarters
P = $1,000(P/A, 2.02%, 20) = $16,320

3.11* r = 9%, M = 12, N = 36 months
im = 9% 12 = 0.75% per month
P = $30,000 $5,000 = $25,000
A = $25,000(A/P, 0.75%, 36) = $795


3.12* r = 12%, M = 12, im = 12% 12 = 1%
P = $100,000 $30,000 = $70,000
P = A(P/A, i, n)
$70,000 = $1,000(P/A, 1%, n), (P/A, 1%, n) = 70
n = 121 months

$3.13* A = P(A/P, i, N)
$922.90 = $20,000(A/P, im, 24)
(A/P, im, 24) = 0.0461
im = 0.83%

B12 = A(P/A, i, N n) = $922.9(P/A, 0.83%, 12) = $10,500

3.14* P = A(P/A, ia, N)
$20,000 = $5,548.19(P/A, ia, 5)
(P/A, ia, 5) = 3.6048
ia = 12%

3.15* F = 2P, r = 9%, M = 4, N = number of quarters
iq = r M = 9% 4 = 2.25%
F = P(1 + iq)N = 2P
(1 + 2.25%)N = 2
N = 31.15 quarters = 8 years

$3.16* ia = 8.87%, M = 365
r = [(1 + ia)1/365 1] X 365 = 8.50%

$3.17* r = 8%, M = 1, ia = r = 8%
X = $1,000(F/P, 8%, 4) $100(F/P, 8%, 3) $300(F/P, 8%, 2)
$500(F/P, 8%, 1) = $345

$3.20
Nominal interest rate:
r = 1.25% X 12 = 15%
Effective annual interest rate:
ia = (1 + 0.0125)12 1 = 16.08%

$3.22 Effective interest rate per payment period:
$45 = $40(1 + i)
i = 12.5% per week
(a) Nominal interest rate:
r = 12.5% X 52 = 650% compounded weekly
(b) Effective annual interest rate:
ia = (1 + 0.125)52 1 = 45,601.60%

$3.24*
24-month lease plan:
PE = ($2,200 + $500) + $470(P/A, 0.5%, 24) $500(P/F, 0.5%, 24)
= $12,860.95
Up-front lease plan:
PE = $11,970 + $500 $500(P/F, 0.5%, 24)
= $12,026
Select the single up-front lease plan.

3.28*
(a) P = $4,000(P/A, 2.25%, 48) = $116,678
(b) P = $4,000(P/A, 2.2669%, 48) = $116,287
(c) P = $4,000(P/A, 2.2755%, 48) = $116,089

3.32 i = er/K 1 = 0.01829
A = $10,000(A/P, 1.829%, 16) = $726.56

3.35 i = e0.0975/4 1 = 2.4674%
P = $500(P/A, 2.4674%, 20) = $7,819

3.38*
(a) F = $1,500(F/A, 3%, 20) = $40,305.56
(b) F = $2,500(F/A, 2%, 24) = $76,054.66
(c) F = $3,000(F/A, 0.75%, 168) = $1,003,554.24

$3.40
$24,000 = $583.66(P/A, i, 48)
i = 0.65%
ia = (1 + 0.0065)12 1 = 8.085%

$3.45*
Future equivalent of the receipts:
F1 = $1,500(F/P, 2%, 4) + $2,500 = $4,123.65
Future equivalent of deposits:
F2 = A(F/A, 2%, 8)(1.02) = 8.7546A
Letting F1 = F2 and solving for A yields A = $471.03

$3.47
Establish the cash flow equivalence at the end of 25 years. Referring A to
his quarterly deposit amount, we obtain the following:
A(F/A, 2%, 100) = $45,000(P/A, 8.243%, 10)
312.2323A = $298,672
A = $956.57

3.54 First compute the present equivalent of the energy cost during the
first operating cycle:

P = $25(P/A, 0.75%, 3)(P/F, 0.75%, 1) + $40(P/A, 0.75%, 3)(P/F, 0.75%,
7) = $185.54

Then, compute the total present worth of the energy cost over 3
operating cycles.
P = $185.54 + $185.54(P/F, 0.75%, 12) + $185.54(P/F, 0.75%, 24)
= $510.25

3.55* Pas couvert en classe



3.58* Given: r1 = 6% compounded quarterly, r2 = 10% compounded
quarterly, and r3 = 8%
compounded quarterly, indicating that i1 = 1.5% per quarter, i2 = 2.5%
per quarter, and

i3 = 2% per quarter.

(a) Find P:
P = $2,000(P/F, 1.5%, 4) + $2,000(P/F, 1.5%, 8) + $3,000(P/F, 2.5%, 4)
X (P/F, 1.5%, 8) + $2,000(P/F, 2.5%, 8)(P/F, 1.5%, 8) + $2,000(P/F, 2%,
4)(P/F, 2.5%, 8)(P/F, 1.5%, 8)
= $8,875.42

(b) Find F:
F = P(F/P, 1.5%, 8)(F/P, 2.5%, 8)(F/P, 2%, 4) = 13,186

(c) Find A, starting at 1 and ending at 5:

F = A + A(F/P, 2%, 4) + A(F/P, 2.5%, 4)(F/P, 2%, 4) + A(F/P, 2.5%, 8) X
(F/P, 2%, 4) + A(F/P, 1.5%, 4)(F/P, 2.5%, 8)(F/P, 2%, 4) = 5.9958A

A = $2,199.21


3.60 Since payments occur annually, you may compute the effective
annual interest rate for each
year.

F = $400(F/P, 9.416%, 2)(F/P, 9.417%, 2) + $250(F/P, 9.416%, 1)(F/P,
9.417%, 2) + $100(F/P, 9.417%, 2) + $100(F/P, 9.417%, 1) + $250 =
$1,379.93

$3.64 Given: Purchase price = $18,000, down payment = $1,800,
monthly payment (dealer financing) = $421.85, N = 48 end-of-month
payments:

(a) Given: i = 11.75%/12 = 0.97917% per month
A = $16,200(A/P, 0.97917%, 48) = $16,200(0.02621) = $424.62

(b) Using dealer financing, find i: $421.85 = $16,200(A/P, i, 48)

i = 0.95% per month

r = 0.95% X 12 = 11.40% per year

$3.67* P = $175,000 $30,000 = $145,000, M = 2, r = 8.5%
Monthly interest rate i = (1 + 8.5%/2)1/6 1 = 0.6961%
A = $145,000(A/P, 0.6961%, 180) = $1,415.42

$3.74 Given: r = 7% compounded daily, N = 25 years
Since deposits are made at year end, find the effective annual interest
rate:
ia = (1 + 0.07/365)365 1 = 7.25%
Then, find the total amount accumulated at the end of 25 years:
F = $2,000(F/A, 7.25%, 25) + $125(F/G, 7.25%, 25)
= $2,000(F/A, 7.25%, 25) + $125(P/G, 7.25%, 25)(F/P, 7.25%, 25)
= $201,071.85

$3.75*
(a) $3,000 = $156.04(P/A, i, 24)
i = 1.85613% per month
r = 1.85613% X 12 = 22.2735%
ia = (1 + 1.85613%)12 1 = 24.6941%
(b) P = 156.04(P/A, 1.85613%, 12) = $1,664.85

3.79* $10,000 = A(P/A, 8%/12, 12) + A(P/A, 0.75%, 12)(P/F, 8%/12,
12) = A(11.4958) + A(11.4349)(0.9234) = 22.05479A
A = $453.42

$3.84 Given: Par value = $1,000, coupon rate = 8%, paid as $40 every 6
months, purchase price = $920, N = 8 semiannual periods, required YTM
= 9% compounded semiannually
$920 = $40(P/A, 4.5%, 8) + F(P/F, 4.5%, 8)
F = $933.13

$3.85 (c) P = $30(P/A, 4.5%, 10) + $1,000(P/F, 4.5%, 10)

3.88 Given: Par value = $1,000, interest payment = $100 semiannually, i
= 4.5% semiannually,
NA = 30 semiannual periods, NB = 2 semiannual periods
PA = $100(P/A, 4.5%, 30) + $1,000(P/F, 4.5%, 30) = $1,895.89

PB = $100(P/A, 4.5%, 2) + $1,000(P/F, 4.5%, 2) = $1,103

3.90 Given: Par value = $1,000, coupon rate = 12%, paid as $60 every 6
months, N = 30 semiannual periods

(a) Given that the nominal interest rate falls to 9% per year, after 2
years, find the sale price of the bond:
P = $60(P/A, 4.5%, 26) + $1,000(P/F, 4.5%, 26) = $1,227.20

(b) Given that the nominal interest rate rose to 13% per year, after 2
years, find the sale price:
P = $60(P/A, 6.5%, 26) + $1,000(P/F, 6.5%, 26) = $938.04

(c) Given that todays purchase price is $783.58, find the current yield:
current yield = $60/$783.58 = 7.657% semiannually
The effective annual current yield = 15.9%.