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n solving these problems please useExcel formulas of the time value of money valuation including : Present Value / PV,Future Value / FV, interest Rate
n solving these problems please useExcel formulas of the time value of money valuation including :
Present Value / PV,Future Value / FV, interest Rate / Rate,Number of periods / NPER
You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions:
- Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2; (2) an ordinary annuity of $100 per year for 3 years; and (3) an uneven cash flow stream of $50, $100, $75, and $50 at the end of Years 0 through 3.
- Whats the future value of $100 after 3 years if it earns 4%, annual compounding?
- Whats the present value of $100 to be received in 3 years if the interest rate is 4%, annual compounding?
- What annual interest rate would cause $100 to grow to $119.10 in 3 years?
- If a companys sales are growing at a rate of 10% annually, how long will it take sales to double?
- Whats the difference between an ordinary annuity and an annuity due? What type of annuity is shown here? How would you change it to the other type of annuity?
- What is the future value of a 3-year, $100 ordinary annuity if the annual interest rate is 4%?
- What is its present value?
- What would the future and present values be if it was an annuity due?
- A 5-year $100 ordinary annuity has an annual interest rate of 4%.
- What is its present value?
- What would the present value be if it was a 10-year annuity?
- What would the present value be if it was a 25-year annuity?
- What would the present value be if this was a perpetuity?
- A 20-year-old student wants to save $5 a day for her retirement. Every day she places $5 in a drawer. At the end of each year, she invests the accumulated savings ($1,825) in a brokerage account with an expected annual return of 8%.
- If she keeps saving in this manner, how much will she have accumulated at age 65?
- If a 40-year-old investor began saving in this manner, how much would he have at age 65?
- How much would the 40-year-old investor have to save each year to accumulate the same amount at 65 as the 20-year-old investor?
- What is the present value of the following uneven cash flow stream? The annual interest rate is 4%.
- Will the future value be larger or smaller if we compound an initial amount more often than annually (e.g., semiannually, holding the stated (nominal) rate constant)? Why?
- Define (a) the stated (or quoted or nominal) rate, (b) the periodic rate, and (c) the effective annual rate (EAR or EFF%).
- What is the EAR corresponding to a nominal rate of 4% compounded semiannually? Compounded quarterly? Compounded daily?
- What is the future value of $100 after 3 years under 4% semiannual compounding? Quarterly compounding?
- When will the EAR equal the nominal (quoted) rate?
- What is the value at the end of Year 3 of the following cash flow stream if interest is 4% compounded semiannually? (Hint: You can use the EAR and treat the cash flows as an ordinary annuity or use the periodic rate and compound the cash flows individually.)
- What is the PV?
- What would be wrong with your answer to parts l(1) and l(2) if you used the nominal rate, 4%, rather than the EAR or the periodic rate,to solve the problems?
- Construct an amortization schedule for a $1,000, 4% annual interest loan with three equal installments.
- What is the annual interest expense for the borrower and the annual interest income for the lender during Year 2?
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