1. You must use excel spreadsheet for each of these two problems. 2. You must apply time value formulas provided in the attached summary note. 3. Using any other function either on Excel of in the finance calculator is NOT acceptable. Problem #1 (2 points) Recently you purchased a nice car for $52,000 on January 1, 20x1. The dealer asked you to $2000 down and offered you financing for the remaining. The condition of the financing was as follows: 1. Total period was 7 years. 2. Interest rate is 1.9% 3. Your payment should be at the end of each month. Required to calculate your monthly payments using the appropriate time value of money provided for you at attached documents and also posted on the blackboard. You must prepare the following the schedule in Excel and fill in the numbers. Make sure DO NOT type the numbers and rather transfer the cells. Schedule of Loan Amortization #of Period in years ? # of period in months ? Interest rate per year ? Interest rate per month ? Period Payments Interest Principle Balance 1/1/X1 $50,000 1/30/X1 Problem #2 (3 points) Lincoln Corporation Issued $10,000,000 with the following codition: Period of the bond 30 years. Stated interest rate is 10% Effective market) rate is 12% Interest is paid at the end of each year. Calculate price of the bond using appropriate present value formula available to you and then prepare the following schedule on an Excel spreadsheet. Schedule of Bond Amortization Period Payments Interest Principle Book Value $ ? --- 2 2 30 Time Value of Money https://www.youtube.com/watch?v=gkoEAPAWZeg Time Value of Money and its relevance - Present value based measurements in accounting are: notes, leases, pensions and other post retirement benefits, long-term assets, sinking funds, business combinations, disclosures, and installment contracts Simple and Compound Interest (See items 1 and 2 in the Fundamental Concepts on page 270) Interest Tables To utilize the correct interest table of the 5, you must identify which you are solving for: Future Value of a single sum >> FV=PV (1+i)" Present Value of a single sum >> PV=FV (1+i) Future Value of an ordinary annuity >> FVOA = A (((1+i)"-1)/1) Present Value of an ordinary annuity >> PVA = A((1-1/(1+i)")yi)) Present Value of an annuity due >> PV AD = A (1+((1-1/(1+i)"\/1)) Present Value of perpetual Annuity >> PVPA = A Fundamental Variables i-Rate . n-Number of time periods FV - Future value PV - Present value A- Annuity Future and Present Value (See items 5a and 6a in Fundamental Concepts) Annuities (See items 5b and 6b in "Fundamental Concepts") Ordinary: Payment / receipt, at the end of the period Due: Payment/receipt, at the beginning of the period Deferred: starts sometime in the future. Valuation of long-term Bonds = summation of (PV of principle + PV of annuities) Expected Cash Flows - This approach uses a range of cash flows and their probabilities to provide the most likely estimate of expected cash flows; the proper interest rate used to discount the cash flows is referred to as the risk-free rate of return. 1. You must use excel spreadsheet for each of these two problems. 2. You must apply time value formulas provided in the attached summary note. 3. Using any other function either on Excel of in the finance calculator is NOT acceptable. Problem #1 (2 points) Recently you purchased a nice car for $52,000 on January 1, 20x1. The dealer asked you to $2000 down and offered you financing for the remaining. The condition of the financing was as follows: 1. Total period was 7 years. 2. Interest rate is 1.9% 3. Your payment should be at the end of each month. Required to calculate your monthly payments using the appropriate time value of money provided for you at attached documents and also posted on the blackboard. You must prepare the following the schedule in Excel and fill in the numbers. Make sure DO NOT type the numbers and rather transfer the cells. Schedule of Loan Amortization #of Period in years ? # of period in months ? Interest rate per year ? Interest rate per month ? Period Payments Interest Principle Balance 1/1/X1 $50,000 1/30/X1 Problem #2 (3 points) Lincoln Corporation Issued $10,000,000 with the following codition: Period of the bond 30 years. Stated interest rate is 10% Effective market) rate is 12% Interest is paid at the end of each year. Calculate price of the bond using appropriate present value formula available to you and then prepare the following schedule on an Excel spreadsheet. Schedule of Bond Amortization Period Payments Interest Principle Book Value $ ? --- 2 2 30 Time Value of Money https://www.youtube.com/watch?v=gkoEAPAWZeg Time Value of Money and its relevance - Present value based measurements in accounting are: notes, leases, pensions and other post retirement benefits, long-term assets, sinking funds, business combinations, disclosures, and installment contracts Simple and Compound Interest (See items 1 and 2 in the Fundamental Concepts on page 270) Interest Tables To utilize the correct interest table of the 5, you must identify which you are solving for: Future Value of a single sum >> FV=PV (1+i)" Present Value of a single sum >> PV=FV (1+i) Future Value of an ordinary annuity >> FVOA = A (((1+i)"-1)/1) Present Value of an ordinary annuity >> PVA = A((1-1/(1+i)")yi)) Present Value of an annuity due >> PV AD = A (1+((1-1/(1+i)"\/1)) Present Value of perpetual Annuity >> PVPA = A Fundamental Variables i-Rate . n-Number of time periods FV - Future value PV - Present value A- Annuity Future and Present Value (See items 5a and 6a in Fundamental Concepts) Annuities (See items 5b and 6b in "Fundamental Concepts") Ordinary: Payment / receipt, at the end of the period Due: Payment/receipt, at the beginning of the period Deferred: starts sometime in the future. Valuation of long-term Bonds = summation of (PV of principle + PV of annuities) Expected Cash Flows - This approach uses a range of cash flows and their probabilities to provide the most likely estimate of expected cash flows; the proper interest rate used to discount the cash flows is referred to as the risk-free rate of return