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Time Value Workshop Solutions

# Time Value Workshop Solutions - BUSI 105 Time Value...

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BUSI 105 Time Value Workshop 1. You estimate that your home will appreciate at the rate of 5% compounded annually. If your home is worth \$300,000 today, how much should it be worth 10 years from now? FV = 300,000 * FVIF (5%,10,1) | -1 PV, 0 PMT, 10 N, 5 I/Y, CPT FV = 1.6289 = 300,000 * 1.6288946 = \$488,668.39 2. If you could earn 8% compounded monthly, what is the most you should be willing to give up in return for receiving a. a lump sum of \$10,000 six years from now? PV = 10,000 * PVIF(8%,6,12) | -1 FV, 0 PMT, 6*12=N, 8/12=I/Y, CPT PV = 0.6198 PV = 10,000 * 0.6197669 = \$6,197.70 b. a \$100 monthly annuity for the next six years? PV = 100 * PVIFA(8%,6,12) | -1 PMT, 0 FV, 6*12=N, 8/12=I/Y, CPT PV = 57.0345 PV = 100 * 57.0345221 = \$5,703.45 3. How much would you need to put away quarterly for the next 30 years in order to accumulate \$1,000,000 at the end of that period? Assume you can earn 10% per year with quarterly compounding. PMT = \$1,000,000 * SFF(10,30,4) | -1 FV, 0 PV, 30*4=N, 10/4=I/Y, CPT PMT = 0.00136 = \$1,000,000 * 0.0013618 = \$1,361.79

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4. Prepare an amortization table for the first two years of a five year fixed rate amortizing loan in the amount of \$250,000. The loan rate is 11% and payments are annual. Year Amount Outstandin g End of Year Annual Debt Service Principal Interest 0 250,000.00 67,642.58 1 209,857.42 67,642.58 40,142.58 27,500.00 2 165,299.16 67,642.58 44,558.26 23,084.32 3 115,839.49 67,642.58 49,459.67
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