Chapter 5

ST-2, Q.5-13A, 14A, 25A, 33A, 37A

38A, 21B, 27B, 41B
Page 167 ST-2
Mathematical Solution:
PV = PMT (PVIFA i, n )
30,000 = PMT (PVIFA 13%, 10 ) (use PVIFA table, or)
1
PV = PMT 1 - (1 + i)n
i

1
30,000 = PMT 1 - (1.13 )10
.13

2
PMT = 5,528.69
Page 168 Q.5-13A
Mathematical Solution:
PV = PMT (PVIFA i, n )
60,000 = PMT (PVIFA 9%, 25 ) (use PVIFA table, or)
1
PV = PMT 1 - (1 + i)n
i

1
60,000 = PMT 1 - (1.09 )25
.09

3
PMT = 6,108.38
Page 169 Q.5-14A
Mathematical Solution:
FV = PMT (FVIFA i, n )
15,000 = PMT (FVIFA 6%, 15 ) (use FVIFA table, or)

FV = PMT (1 + i)n - 1
i

15,000 = PMT (1.06)15 - 1

.06

4
PMT = 644.44
 Page 170 Q.5-25A
Mathematical Solution:
At year ten PV = 10,000 (PVIFA 6%, 5 ) + 20,000 (PVIF 6%, 5 )
= 42,123.64 + 14,945.16 = 57,068.80

At year 0; PV = 57,068.80 (PVIF 6%, 10 )

= 31,866.92

5
 Page 170 Q.5-33A
Mathematical Solution:
Saving at year ten = 100,000 (FVIF 7%, 10 ) = 196,715.14
Stock at year ten = 300,000 (FVIF 12%, 10 ) = 931,754.46
Annual deposit
= 10,000 (FVIFA 7%, 5 ) (FVIF 7%, 5) + 20,000 (FVIFA 7%, 5 )
= 80,657.09 +115,014.78 = 195,671.87

Total at year ten = 1,324,141.47

Find payment after retirement

1,324,141.47 = PMT (PVIFA 10%, 20 )
PMT = 155,533.16 6
 Page 171 Q.37-A (Annuity Due)
Mathematical Solution:
FV = PMT (FVIFA i, n ) (1 + i)
FV = 1,000 (FVIFA 10%,10 ) (1.10) (use FVIFA
table, or)

FV = PMT (1 + i)n - 1 (1 + i)
i
FV = 1,000 (1.10)10 - 1 (1.10)
.10
7
FV = 17,531.17
 Page 171 Q.37-A (Annuity Due)
Mathematical Solution:
FV = PMT (FVIFA i, n ) (1 + i)
FV = 1,000 (FVIFA 15%,10 ) (1.15) (use FVIFA table,
or)

FV = PMT (1 + i)n - 1 (1 + i)
i
FV = 1,000 (1.15)10 - 1 (1.15)
.15
8
FV = 23,349.28
P.171 Q.38-A (ANNUITY DUE)
Mathematical Solution:
PV = PMT (PVIFA i, n ) (1 + i)
PV = 1,000 (PVIFA 10%, 10 ) (1.10) (use PVIFA table, or)

1
PV = PMT 1 - (1 + i)n (1 + i)
i
1
PV = 1000 1 - (1.10 )10 (1.10) = $6,759.02
.10 9
P.171 Q.38-A (ANNUITY DUE)
Mathematical Solution:
PV = PMT (PVIFA i, n ) (1 + i)
PV = 1,000 (PVIFA 15%, 10 ) (1.15) (use PVIFA table, or)

1
PV = PMT 1 - (1 + i)n (1 + i)
i
1
PV = 1000 1 - (1.15 )10 (1.15) = $5,771.58
.15 10
 Present Value of a Perpetuity
So,the PV of a perpetuity is very
simple to find:

11
P. 177 Q.5-21B
a. PV = 400/0.09
b. PV = 1,500/0.13
c. PV = 150/0.10
d. PV = 100/0.06

12
Page 177 Q.5-27B
Mathematical Solution:
PV = PMT (PVIFA i, n )
45,000 = 9,000 (PVIFA i, 5 ) (use PVIFA table, or)
1
PV = PMT 1 - (1 + i)n
i

1
45,000 = 9,000 1 - (1 + i )5
i

Because 9,000*5years = 45,000  i = 0% 13

 Page 179 Q.5-41B 60,000 60,000 --- 60,000 100,000

2005 -- --- 2010 2011 --- 2029 2030 ---

60,000 expense (Jan 2010 – Jan 2029)

PV0 = 60,000 (PVIFA 10%, 20) (PVIF 10%, 4)
= 348,892.71
100,000 need on Jan 2030
PV0 = 100,000 (PVIF 10%, 25) = 9,229.60
300,000 need on Jan 2025
PV0 = 300,000 (PVIF 10%, 20) = 44,593.09

14
Total deposit on Jan 2005 = $402,715.40