Finance Help Please
miniet
module_05_application_of_time_value_concepts_problems.xlsProblem 1
| Problem 1 - Future Value of Investment |
| If a firm has $250,000 to invest and can earn 8.5%, compounded annually, how much will the firm have after two years? |
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Problem 2
| Problem 2 - Future Value of Retirement Account | ||
| A self-employed person deposits $1,250 annually in a retirement account that earns 5.5%. | ||
| What will be the account balance at age 62 if the savings program starts when the individual is age 50? | ||
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| How much additional money will be in the account if the saver defers retirement until age 66 and continues the annual contributions until then? | ||
| Hint: First calculate the FV of the account at age 66 and then subtract the FV determined above (at age 62) to arrive at the additional money saved. | ||
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| Additional money saved if the contributions continue until age 66 | ||
| The first part is a repeat of 1a. | ||
| How much additional money will be in the account if the saver discontinues the contributions at age 62, but lets it build up until retirement at age 66? | ||
| Hint: First calculate the FV of the account at age 62, then utilize the FV of the account at age 62 as the PV in the FV calculation for the next 4 years. | ||
| Finally, subtract the FV of the account at age 62 from the FV of the account with no additional contributions to arrive at the additional money saved. | ||
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| Additional money saved if contributions stop at age 62, but the money keeps growing until age 66. |
Problem 3
| Problem 3 - Present Value of Savings Account |
| A father has decided to set aside a one time lump sum for college that will amount to $60,000 by the time |
| his 5 year old is 18 years old (13 years). Using 8% as the rate and assuming no further investments will be made, |
| how much must the father invest today in order to have $60,000 in 13 years? |
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Problem 4
| Problem 4 - Home Loan | ||
| A couple borrows $935,000 for 7 years for the purchase of a vacation home at an interest rate of 7%. | ||
| The loan requires that the interest and principal be paid in equal, annual payments. | ||
| The interest is determined on the declining balance that is owed. | ||
| What are the required annual payments on the loan? | ||
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| PMT | Yearly payment owed | |
| How much is the principal loan balance reduced by during the first year? | ||
| Hint: To determine the principal paid in year 1, subtract the interest paid in year 1 from the total yearly payment. | ||
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| Principal loan value | ||
| Interest paid in year 1 | ||
| Total payment made in year 1 | ||
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Problem 5
| Problem 5 - Lease Payments |
| A company leases equipment for 7 years. |
| The equipment costs $28,000 and the owner wants to earn 9.5% on the lease. |
| What should be the required lease payments? |
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