TVMsampleprobs2 with solutions

TVMsampleprobs2 with solutions - TVM Sample Problems 1. To...

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TVM Sample Problems 1 1. To complete your business school education, you will need $10,000 a year for the next four years, starting next year (that is, you will need to pay for one year’s worth of schooling at the beginning of the year, one year from today). Your rich uncle offers to put you through school and he will deposit a lump sum into a saving account paying 7% p.a. sufficient to defray these expenses. The deposit will be made today. How large must the deposit be? (Assume your uncle is rich because he won the lottery and he doesn’t know much about finance stuff.) PMT = 10,000 1 2 0 3 4 PV = r simple = 7% 2. You are considering financing a new car which cost $51,300 with an amortized loan. The nominal rate is 2.9%, the term of the loan is 6 years and you will make monthly payments. How much will each payment be? 0 1 2 70 71 72 PMT = ? r nominal = 2.9% PV = $51,300 m = 12 T = 6 n = m x T = 12 x 6 = 72 r periodic = r nominal / m = 2.9/12 = 0.24167 P/Y=1, N=72, I/Y= 0.24167, PV=51300; CPT,PMT: PMT = $777.14 OR P/Y=12, N=72, I/Y=2.9, PV=51300’ CPT,PMT: PMT = $777.14 Soln. Opt 2: P/Y=1, N=4, I/Y=7, PMT=10000; CPT,PV: $33,872
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TVM Sample Problems 2 3. How many years will it take for your savings account to accumulate $1m if it pays 4% interest p.a. compounded semiannually and you deposit $10k every 6- months at the end of the 6-month period? 0 PMT = (-)10,000 r = 4% FV = $1m n = ? 1 2 3 4 5 n - 1 n - 2 4. Today you deposited $1,300 in a bank that pays 5% p.a., compounded quarterly. How much money would you have in this account 20 months from now? 0 1 2 5 6 7 r nominal = 5% PV = $1,300 m = 4, T = 20/12 = 1.666667 n = m x T = 6.666667 FV = ? n = 6.666667 r periodic = r nominal /m = 5%/4 = 1.25% P/Y=1, N=6.666667, I/Y=1.25, PV=1300; CPT,FV: FV = $1,412.25 OR P/Y=4, N=6.666667, I/Y=5, PV=1300; CPT,FV: FV = $1,412.25 a) Find number of periods r periodic = r nominal / m = 4%/2 = 2% P/Y=1, I/Y= 2, PMT=-10000, FV=1000000; CPT,N: N = 55.48 periods OR P/Y=2, I/Y= 4, PMT=-10000, FV=1000000; CPT,N: N = 55.48 periods b) Find number of years Years = N/m = 55.48/2 = 27.74 years
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TVM Sample Problems 3 5. On 1 January 2004 you deposited $700 in a mutual fund that has been yielding a constant 6% p.a. for the last several years. You plan to deposit $700 every 3 months thereafter for the next 4 years (i.e. the next deposit will be made 1 April, the subsequent deposit on 1 July, etc.) How much money will have accumulated after 4 years? 0 1 2 14 15 16 PMT = 700 FV = ? r nominal = 6% m = 4, T = 4 n = m x T = 16 6. You are considering leasing a car that cost $46,000. The lease will be for 5 years and requires monthly payments. Somewhere on the lease paperwork you notice a statement to the affect that you will be charged an APR of 6.2850%. Assume the car will be worth $20,000 at the end of the lease. What kind of
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This note was uploaded on 04/02/2008 for the course MGT 326 taught by Professor Cormier during the Spring '08 term at New Mexico.

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TVMsampleprobs2 with solutions - TVM Sample Problems 1. To...

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