NAME:____________________________________________

IE 305 Spring 2015 Section B, XE

Homework Chapt 3-2 Answer Sheet
You must attach your work to the back of this cover sheet. For these
problems, show the cash flow diagram and cash flow notation.

1) What is the future value of an $800/month deposit at the end

of 10 years that grows at a rate of $75/month, starting with
your second deposit. Assume that your initial deposit occurs
at the end of your first month. Use 10% interest.
answer____________
What is the amount of your last deposit?_______________

2) Assume that you want to make annual deposits in order to

save $2million in 30 years, and you can achieve a 10%
annual interest rate. Also assume that you can increase your
annual deposit by 5% each year.
What is your initial deposit amount________________
What is your final deposit amount_____________

3) Your machine operator is becoming more productive, and

generates additional profit each year. You expect to receive
$20,000 in profit at the end of this year, but this will increase
5% a year for the next 10 years. If you have an 8% interest
rate on your investments, what is the Present Value of the
profits over the next 10 years?
answer______________
4) What is the present value of an investment which compounds
annually at 10% and starts at $10,000/year and decreases by
8% per year for 10 years (starting with the second year)?
answer___________________

NAME:____________________________________________

5) What is the future value of an investment which compounds

annually at 10% and starts at $1,000/year and grows by 5%
per year for 15 years (starting with the second year)?
answer___________________
6) What is the Future Value at year 8, of a $3,000 inflow at time
zero (instantly), and a $1,000 outflow 6 years from now and a
$4,000 inflow 7 years from now. Assume an interest rate of
10% for years 1, 2 and 3, 8% for years 4 and 5, and 15% for
years 6, 7 and 8.
answer____________ also show the cash flow diagram.
7) Assume that you have the following cash flows at the
following times:
0: -$100
1: $0
2: $100
3: $200
What is the Annual Equivalent (A) of this series of Cash
Flows for time periods (0, 1, 2, 3) i=10%.
answer________________