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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 endofyear 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 )^(Nt) = 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....
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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.
 Spring '11
 Mehdi
 Management, Time Value Of Money

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