101 102 103 104 105 7. A major business publication reported a 12% annual rate of inflation based on a recent 1% monthly increase in the CPI (consumer price index). What is the true or effective annual rate of inflation? 106 107 PV 108 FV $1.12 89% 10.71% 109 N 1101 0.12 111 PMT 112 the power of the dolar will decrease by 10.71 113 Answer: 114 115 116 117 118 119 120 121 116 117 118 119 120 121 8. You notice that all your neighbors seem to need various items (e.g., tree limbs, construction debris) hauled away. You are thinking of buying a dump truck for $70,000. You estimate you could generate annually $25,000 a year cash flow 122 cash flow to equal $0. That is, the first $25,000 of cash flow will start at the end of the second year. The estimated life of the truck is 8 years with no salvage value. You would like an annual return of 12%. Should you buy the dump truck? 123 124 PV -70,000 125 FV $97,477.59 126 N 1271 0.12 128 PMT $25,000.00 129 130 Answer: yes Cheat Sheet 330 M125 X f A B D E F G H 1 J K L M N 0 P 0 R S T 133 134 135 136 137 138 139 9. Today, your uncle offers to give you $6,000 check in four years and $6,000 a year for 5 additional years on the same date as the first check for a total of 6 checks. Using a discount rate of 3 percent, what is the current value of these expect 140 141 PV $32,653.90 142 FV 60001 143 N 144 | 0.03 145 PMT 6000 146 147 Answer: we expected to be = 32,653.90 148 149 150 151 152 153 154 155 101 102 103 104 105 7. A major business publication reported a 12% annual rate of inflation based on a recent 1% monthly increase in the CPI (consumer price index). What is the true or effective annual rate of inflation? 106 107 PV 108 FV $1.12 89% 10.71% 109 N 1101 0.12 111 PMT 112 the power of the dolar will decrease by 10.71 113 Answer: 114 115 116 117 118 119 120 121 116 117 118 119 120 121 8. You notice that all your neighbors seem to need various items (e.g., tree limbs, construction debris) hauled away. You are thinking of buying a dump truck for $70,000. You estimate you could generate annually $25,000 a year cash flow 122 cash flow to equal $0. That is, the first $25,000 of cash flow will start at the end of the second year. The estimated life of the truck is 8 years with no salvage value. You would like an annual return of 12%. Should you buy the dump truck? 123 124 PV -70,000 125 FV $97,477.59 126 N 1271 0.12 128 PMT $25,000.00 129 130 Answer: yes Cheat Sheet 330 M125 X f A B D E F G H 1 J K L M N 0 P 0 R S T 133 134 135 136 137 138 139 9. Today, your uncle offers to give you $6,000 check in four years and $6,000 a year for 5 additional years on the same date as the first check for a total of 6 checks. Using a discount rate of 3 percent, what is the current value of these expect 140 141 PV $32,653.90 142 FV 60001 143 N 144 | 0.03 145 PMT 6000 146 147 Answer: we expected to be = 32,653.90 148 149 150 151 152 153 154 155