Question
As a rising business reporter for a financial newspaper, you are given the task of preparing a series of articles that explain the power of
As a rising business reporter for a financial newspaper, you are given the task of preparing a series of articles that explain the power of time value of money. The editor would like you to address several specific questions in addition to demonstrating for the audience the use of time value of money techniques by applying them to several problems. Kindly prepare your response the following request.
Explain the principal of time value of money. Demonstrate with examples the relationship between discounting and compounding.
Bonus question: Provide explanations about the difference between lump sums and annuities. What is the relationship between the presentvalue factor of a lump sum and the present-value factor of an annuity? To prove and illustrate, explain in detail, and solve the following cases.
What will 35 000 USD invested for 5 years at 3 percent compounded annually grow to?
How many years will it take 24 000 USD to grow to 62 250 USD if it is invested at 11 percent compounded annually?
At what rate would 6 000 USD have to be invested to grow to 20 250 USD in 15 years? Calculate the future sum of 12 000 USD, given that it will be held in the bank for 5 years and earn 10 percent compounded semiannually.
What is the present value of 500 USD per end-of-year for 7 years discounted back to the present at 4 percent? What would be the present value if the payment were a start of each year?
What is the future value of 500 USD per end-of-year for 7 years compounded at 4 percent? What would be the future value if the payment were a start of each year?
Rubrics
100 Points Descriptor
40% The student demonstrates understands the concepts and uses the right approach with the right formulas
10% The student explains the calculations, and which is the theory behind
35% The student applies the right numbers in the formulas
10% The student finds the right answer
5% The student shows an accurate presentation
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