succinctly. Questions drawn from Chapter 4. SHOW CALCULATIONS!! Chapter 4 - Introduction to Valuation - Time Value of Money 1. Think of Future value as what an investment today will grow to at a certain date in the future. So, What is the Future Value one year from now for $500 invested today at 10 percent? (1 point) For hints, See calculations: (pg 98) r= interest rate (10 percent = .10) Future Value = (1 + r) x (Amount invested) = (1.1) $500 = $550 2. Present Value answers the question of: how much do we have to invest today at given interest rate to reach a pre-desired sum in the future? a. So if you wanted to buy $1000 worth of textbooks in one year and would earn 9% on your money, how much would you have to invest today to have $1000 in one year? (1 point) PV = $1000 x (1/1.09) = $???. See pg 105. b. What about if you only needed $500 to buy books in one year (still at 9%)? Would it be half? (1 point) Show calculations. See pg 105 C. What if you wanted to buy $1000 worth of textbooks in one year but could only earn 4.5 % on your money, how much would you have to invest? (1 point) Print Layout View Sec 1 Pages 1 of 3 Words 7 of 529 O: ODO DOD FI F2 F3 F4 3. Assume you deposit $1,000 today in an account that pays 9% annual interest. How much will you have in 5 years? Hint see pg 117 (1 point) 4. A rich Aunt set up a trust fund that will pay you a $100,000 lump sum in 8 years. If the relevant interest rate is 12 % what is this trust fund worth today? (1 point) see pg 116 5. If you earn a 15 % interest rate, how much money would you have to invest now to have $1000 in 3 years? Hint: PV = ($1000/(1+r):] (1 point) 6. If you earn a 10 % interest rate, how much money would you have to invest now to have $1000 in 3 years? P106 (1 point) 7. MULTIPLE PERIOD ANALYSIS: The following is an example for you to study: At a 15% rate, how much money would you have to invest today If you needed to have: $1,000 at the end of 3 years? (See below for formula and example) Hint:r = interest rate (15%) Hint: t = time in years Hint formula: PV = $Needed [1/(1+r)"] = [51/(1+0) 3 Years example: So = ($1000/ (1+.15) = ($1000/1.15) = [$1000/1.52091 =$657.50 for 3 years So to have $1000 in three (3) years, you need to invest $657.50 at 15% interest to reach $1000 in three years. 100% Book Air What if you wanted to buy $1000 worth of textbooks in one year bu could only earn 4.5 % on your money, how much would you have to invest? (1 point) Answer the following: So, At a 15% rate, how much money would you have to invest today If you needed to have: $1000 at the end of 8 years? (1 point) $1000 at the end of 12 years? (1 point] Print Layout View Sec 1 Pages: 3 of 3 Words: 529 of 529 MacB RO 000 DDO F3 F2 F4 F5 # 3 $ 4 % 5 1 N
