TIME VALUE OF MONEY (CHAPTER 4) 1. Future value (FV)‚ the value of a present amount at a future date‚ is calculated by applying compound interest over a specific time period. Present value (PV)‚ represents the dollar value today of a future amount‚ or the amount you would invest today at a given interest rate for a specified time period to equal the future amount. Financial managers prefer present value to future value because they typically make decisions at time zero‚ before the start of a
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Sample Problems—Time Value of Money 1. Gomez Electronics needs to arrange financing for its expansion program. Bank A offers to lend Gomez the required funds on a loan where interest must be paid monthly‚ and the quoted annual rate is 8 percent. Bank B will charge 9 percent‚ with interest due at the end of the year. What is the difference in the effective annual rates charges by the two banks? 2. In 1889‚ Vincent Van Gogh’s painting‚ “Sunflowers”‚ sold for $125. In 1987 it sold for $36 million
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Time Value of Money (TVM)‚ developed by Leonardo Fibonacci in 1202‚ is an important concept in financial management. It can be used to compare investment alternatives and to solve problems involving loans‚ mortgages‚ leases‚ savings‚ and annuities. TVM is based on the concept that a dollar today is worth more than a dollar in the future. That is mainly because money held today can be invested and earn interest. A key concept of TVM is that a single sum of money or a series of equal‚
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ACFI 340 – TAKE HOME QUIZ - FALL‚ 2011 Below you will find a series of independent questions involving present value concepts. Show all factors used in present value computations and indicate the table that was used (FV of $1‚ PV of $1‚ etc). If you use a financial calculator‚ show the key strokes you used to compute the answer: N‚ i/y‚ PV‚ FV and PMT Please download a copy of this quiz and type your answers after each question. Each student should design his/her own spreadsheets. Where amortization
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Time Value of Money Problems 1. What will a deposit of $4‚500 at 10% compounded semiannually be worth if left in the bank for six years? a. $8‚020.22 b. $7‚959.55 c. $8‚081.55 d. $8‚181.55 2. What will a deposit of $4‚500 at 7% annual interest be worth if left in the bank for nine years? a. $8‚273.25 b. $8‚385.78 c. $8‚279.23 d. $7‚723.25 3. What will a deposit of $4‚500 at 12% compounded monthly be worth at the end of 10 years? a. $14‚351.80 b. $14‚851.80 c. $13‚997.40 d. $14
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TIME VALUE OF MONEY INTRODUCTION This module or note is created to provide students with step-by-step explanation and discussion on time value of money that mainly based on formulas instead of time value of money tables. The reason is so that students are able to answer all sorts of questions that involve interest rates and time period that are not available in the tables. OUTLINE OF THE NOTE A. Simple Interest B. Compound Interest 1. Single Amount • Future Value • Present Value
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Time Value of Money According to the simple calculator on Bankrate.com‚ if I place $5000 in a saving account earning 2.50% Interest compounded at the end of a four year span I would have $10‚558.93 accumulated in my account. Setting the annual interest option to semi-annual I would have $10‚563.82. This is a difference of $4.89. Setting the annual interest rate to 3% compounded annually I would have $10‚716.56 in a four year span. Setting the Annual interest option to semi-annual I would have accumulated
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Time Value of Money Danielle Kaplan B6022-P A01 Calculate the future value of 100‚000 ten years from now based on the following annual interest rates 2 ( 100‚000 x (1.02)10 121‚899 5 ( 100‚000 x (1.05)10 162‚899 8 ( 100‚000 x (1.08)10 215‚892 10 ( 100‚000 x (1.10)10 259‚374 Calculate the present value of a stream of cash flows based on a discount rate of 8. Annual cash flow is as follows Year 1 100‚000 ( 100‚000 / (1.08) 92‚592 Year 2 150‚000 ( 150‚000 / (1.08)2 128‚600 Year 3 200
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Time Value of Money Project Show all your work! Name _________________ 1. If Mrs. Beach wanted to invest a lump sum of money today to have $100‚000 when she retired at 65 (she is 40 years old today) how much of a deposit would she have to make if the interest rate on the C.D. was 5%? a. What would Mrs. Beach have to deposit if she were to use high quality corporate bonds an earned an average rate of return of 7%. b. What would Mrs. Beach have to deposit if she
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much will Jim have on deposit at the end of seven years? Q. 2 Find the present value of $10‚000 to be received at the end of 10 periods at 8% per period. Q.3 What is the value of the following set of cash flows today? The interest rate is 8% for all cash flows. Year Amount 1 Rs. 3000 2 Rs.5000 3 Rs.7000 4 Rs. 10000 Q.4 What is the present value of a 4-year annuity‚ if the annual interest is 5%‚ and the annual payment is $1‚000
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