Time Value of Money Examples

# Time Value of Money Examples - Part 1 Answers Points 20 1 2...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Part 1 Answers 3/31/2011 Points: 20 1 2 3 4 5 6 7 Time Value of Money To get the dialog box, click on fx, then Financial, then FV, then OK. Inputs: PV = 1000 I/YR = 10% N = 5 FV = PV(1+I)^N = W izard (FV): Experiment by changing the input values to see how quickly the output values change. Inputs: FV = 1000 I/YR = 10% N = 5 PV = FV/(1+I)^N = W izard (PV): d. A security has a cost of \$1,000 and wil return \$2,000 after 5 years. What rate of return does the security provide? Inputs: PV =-1000 FV = 2000 I/YR = ? N = 5 W izard (Rate): Inputs: PV =-30 FV = 60 I/YR = growth rate 2% N = ? W izard (NPER): = Years to double. Inputs: PM T = \$1,000 N = 5 I/YR = 15% PV: Use function wizard (PV) PV = FV: Use function wizard (FV) FV = g. How would the PV and FV of the above annuity change if it were an annuity due rather than an ordinary annuity? PV annuity due = x = Exactly the same adjustment is made to find the FV of the annuity due. FV annuity due = x = h. What would the FV and the PV for parts a and c be if the interest rate were 10% with Part a. FV with semiannual compounding: Orig. Inputs New Inputs Inputs: PV = 1000 1000 I/YR = 10% 5% N = 5 10 Formula: FV = PV(1+I)^N = W izard (FV): Part c. PV with semiannual compounding: Orig. Inputs New Inputs Inputs: FV = 1000 1000 I/YR = 10% 5% N = 5 10 Formula: PV = FV/(1+I)^N = W izard (PV): i. Find the PV and FV of an investm ent that m akes the fol owing end-of-year paym ents. The interest rate is 8%. Year Paym ent 1 100 2 200 3 400 Rate = 8% To find the PV, use the NPV function: PV = Year Paym ent x (1 + I )^(N-t) = FV 1 100 1.17 116.64 2 200 1.08 216.00 3 400 1.00 400.00 Sum = An alternative procedure for finding the FV would be to find the PV of the series using the NPV function, then compound that amount, as is done below: PV = FV of PV = Original amount of mortgage: 50000 Term of mortgage: 10 Interest rate: 0.08 Annual payment (use PM T function): Year Beg. Am t. Pm t Interest Principal End. Bal. 1 \$0.00 \$0.00 \$0.00 \$0.00 2 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 3 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 4 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 5 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 6 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 7 \$0.00 \$0.00 \$0.00 \$0.00 \$0.00 8 \$0.00 \$0.00 \$0.00\$0....
View Full Document

## This note was uploaded on 02/27/2012 for the course BUS 510 taught by Professor Mehdi during the Spring '11 term at University of La Verne.

### Page1 / 2

Time Value of Money Examples - Part 1 Answers Points 20 1 2...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online