To determine: The number of periods of investment
Introduction:
The
Answer to Problem 5QP
The number of periods is as follows:
Particulars | Present value | Years | Interest Rate | Future value |
Investment A | $560 | 15.59 | 6% | $1,389 |
Investment B | $810 | 9.40 | 9% | $1,821 |
Investment C | $18,400 | 26.41 | 11% | $289,715 |
Investment D | $21,500 | 24.52 | 13% | $430,258 |
Explanation of Solution
Given information:
Investment A has a present value of $560, future value of $1,369, and an interest rate of 6 percent. Investment B has a present value of $810, future value of $1,821, and an interest rate of 9 percent.
Investment C has a present value of $18,400, future value of $289,715, and an interest rate of 11 percent. Investment D has a present value of $21,500, future value of $430,258, and an interest rate of 13 percent.
Formula:
Derive the formula to calculate the number of periods from the present value equation as follows:
The formula to calculate the number of periods:
Where,
“t” refers to the number of years or periods of investment
“ln” refers to the log value
“FV” refers to the future value
“PV” refers to the present value
“r” refers to the simple rate of interest
Compute the number of periods for Investment A:
Hence, the number of periods of Investment A is 15.59 years.
Compute the number of periods for Investment B:
Hence, the number of periods of Investment B is 9.40 years.
Compute the number of periods for Investment C:
Hence, the number of periods of Investment C is 26.41 years.
Compute the number of periods for Investment D:
Hence, the number of periods of Investment D is 24.52 years.
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Chapter 5 Solutions
Fundamentals of Corporate Finance (Special Edition for Rutgers Business School)
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