Question
1. Calculating Present and Future Values. Use future or present value techniques to solve the following problems: a. How much money you will have
1. Calculating Present and Future Values. Use future or present value techniques to solve the following problems: a. How much money you will have in five years if you invest P5,000 now and earn an annual return of 4%. b. What if you invested your P5,000 for twenty years instead of five years? Assuming that the interest rate is still 4%. How much money will you have? C. You would like to accumulate P50,000 in five years by making a single investment today. You believe you can achieve a return from your investment of 7% annually. What is the amount that you need to invest today to achieve your goal? 2. The Time Value of Money: Putting a Peso Value on Financial Goals Assume that one of your financial goals is to buy your first home in six years. Your first question is how much you want to spend on that home. Let's say you've done your research and feel that, taking future inflation into consideration, you can buy a nice condominium for about P2,000,000 in six years. Of course, you won't need the full amount, but assuming that you'll make a 20% down payment of P400,000 and pay P50,000 in closing costs, you need P450,000. You now have a well-defined financial goal: To accumulate P450,000 in six years to buy a home costing about P2,000,000. The next question is how to get all that money. You can easily estimate how much to save or invest each year if you know your goal and what you expect to earn on your savings or investments. In this case, if you have to start from scratch (that is if nothing has already been saved) and estimate that you can earn about 5% on your money. How much will you have to save or invest per year for each of the next six years to accumulate P450,000 over that time? 3. Calculating the Present Value of Future Cash Flows to Make Smart Decisions You developed an app that you believe will generate P60,000 in income (after paying income taxes) for you at the end of every year for the next ten years, and the app will become useless after that point. You will invest these funds and expect to earn a 5% annual rate of return. A financial firm has offered to purchase your app from you for P500,000. Are you better off keeping your app (in order to generate income over the next ten years), or selling the app today to receive a large payment now?
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