Question
The objective is to find the Time Value of Money problems necessary for making objective investment decisions. We learned that t he concept of the
The objective is to find the Time Value of Money problems necessary for making objective investment decisions. We learned that the concept of the time value of money states that a dollar today is worth more than a dollar received in the future. The rationale for this statement is that money today can be invested today to generate more money in the future for its holders. The time value of money is perhaps one of the most essential concepts finance students must understand. It is at the heart of every financial decision. By understanding this concept, students will develop a deeper appreciation of its use in the financial decision-making process, which impacts all of us personally and professionally.
- We had to watch Time Value of Money here: https://www.youtube.com/watch?v=weWTCA5Ip7Q
- How might one calculate (with how to enter each formula into excel) Problems 9-25, 9-29, and 9-30 using the template provided below?
1) PROBLEM 9-25 - BELOW
Juan Garza invested $20,000 10 years ago at 12 percent, compounded quarterly. How much has he accumulated? | |||||||
Instructions | |||||||
Using the MS Excel FV function, calculate the accumulated value. | |||||||
Assumptions | |||||||
Amount invested | $100,000 | ||||||
Years | 10 | ||||||
Annual interest rate | 12% | ||||||
Accumulated value | $326,204 |
2) PROBLEM 9-29 - BELOW
Your grandfather has offered you a choice of one of the three following alternatives: $7,500 now; $2,200 a year for nine years; or $31,000 at the end of nine years. Assuming you could earn 10 percent annually, which alternative should you choose? If you could earn 11 percent annually, would you still choose the same alternative? | |||||||
Use the MS Excel PV function to complete the table below | |||||||
Assumptions | |||||||
Amount now | $7,500 | ||||||
Annuity (9 years) | $2,200 | ||||||
Amount in 9 years | $12,000 | ||||||
Present values | 10% | 11% | |||||
a. What is the Annuity (9 years) | How to enter FORMULA in excel? | How to enter FORMULA in excel? | |||||
b. What is the Amount received in 9 years | How to enter FORMULA in excel? | How to enter FORMULA in excel? | |||||
c. Assuming you could earn 10 percent annually, which alternative should you choose? | |||||||
Answer here: | |||||||
d. If you could earn 11 percent annually, would you still choose the same alternative? | |||||||
Answer here: | |||||||
3) PROBLEM 9-30 - BELOW
You need $28,974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. | |||||||
Use the MS Excel PV function in part a and enter a formula in part b to solve the requirements of this problem. | |||||||
Information | |||||||
Future value needed | $28,974 | ||||||
Years | 10 | ||||||
Annual investment yield | 8% | ||||||
a. What single payment could be made at the beginning of the first year to achieve this objective? | |||||||
b. What is the Single payment (present value) | How to enter FORMULA in excel? | ||||||
c. What amount could you pay at the end of each year annually for 10 years to achieve this same objective? | |||||||
What are the Payments at end of each year (annuity) | How to enter FORMULA in excel? |
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