Offered An Investment In

Solution Net Present Value Present value of inflow Present value of outflow N 1 year, I 14, inflow 600,000 and outflow 500,000 PV of outflow 500,000 PV of inflow Inflow (1 I)-n 600,000 (1.14)-1 526,315.80 Net present value of business 526,315.80 500,000 26,315.80 2. What will the following investments accumulate to (i.e., the future value (FV) of each) a. 6,000 invested for 10 years at 10 percent compounded annually. b. 8,000 invested for 5 years at 5 percent compounded annually. c. 500 invested for 7 years at 8 percent compounded quarterly. d. 10,000 invested for a total 6 years at 6 percent compounded semi-annually for the first four years followed by 12 percent compounded quarterly for the final two years. Solution We have PV 6000, n 10, I 10 FV PV (1 I)n 6000 (1.10)10 15,562.45 We have PV 8,000, n 5, I 5 FV PV (1 I)n 8000 (1.05)5 10,210.25 We have PV 500, n 7, I 8 compounded quarterly Number of compounding periods - h 4 Effective Interest Rate - r (1 I/h)h 1 (1 0.08/4)4 - 1 (1 0.02)4 - 1 1.08243 - 1 8.243 FV PV (1 r)n 500 (1.08243)7 870.50 Effective interest rate for first