Time Value of Money - answers
What is the amount available on the 18th birthday of his daughter? (1). Calculate future value or present value or annuity ? (2). Future value = PV * (1
2. TIME VALUE OF MONEY
Understand the concepts of time value of money compounding
Chapter 2: Time Value of Money Practice Problems
Chapter 2: Time Value of Money. Practice Problems. FV of a lump sum i. A company's Answer: e EASY. N. 10. I/YR. 8%. PV. -$100.00. PMT. $0.00. FV. $215.89 ii.
Chapter 4: Time Value of Money
Calculations of the value of money problems: The value of money problems may be solved using Note: For an annuity due simply multiply the answer above by (1+ ...
Additional Exercise Questions on Time Value of Money
When you use the effective annual yield on a semi-annual coupon bond to price the corresponding annual coupon bond do you get the same price? Page 3. Answers
Time Value of Money in Islamic Perspective and the Practice in
8 мая 2013 г. Chapter 3 describes the sample of product in Islamic Banks and investigates the issues and challenges. Page 6. ECON6810 - Financial Economics.
Mathematics of Finance
Find the present value of $16000 in 9 years if money can be deposited at 2% compounded semiannually. SOLUTION In 9 years there are 2 # 9 = 18 semiannual
Teaching Time Value of Money Using an Excel Retirement Model.
The answers vary between 5% and 50% with the most common percentage being 10%. The exercise starts with the professor asking nine main questions and seeking
Time Value of Money Homework Exercise - KEY
Use the Time Value of Money tables to answer the following questions. Show your work! 1. You just purchased a house for $130000. Similar houses in your area
Preface
What is the future value of the investment after 3 years? Solution: PV d: Solve time value of money problems for different frequencies of compounding.
Time Value of Money - answers
Answers of study exercises. Time Value of Money. © Nyenrode Center for Finance - Dennis Vink Calculate future value or present value or annuity ?
2. TIME VALUE OF MONEY
Here we use the command fsolve rather than solve
Chapter 2: Time Value of Money Practice Problems
If the going interest rate on 3-year government bonds is 4% how much is the bond worth today? Interest rate on a simple lump sum investment iii. The U.S.
Additional Exercise Questions on Time Value of Money
When you use the effective annual yield on a semi-annual coupon bond to price the corresponding annual coupon bond do you get the same price? Page 3. Answers
Time Value of Money Learning Activities
Quiz Answers: http://www.zenwealth.com/businessfinanceonline/TVM/TVMQuiz.html. Time Value Time Value of Money Calculator (American Century Investments):.
TIME VALUE OF MONEY
spreadsheet program with time value-of-money functions or financial Answer. 2. Same facts as #1
Topic Overview
Student Worksheet with Answer. Suggested Activity: ? Problem Solving. Topic Overview C07: Fundamentals of Financial Management – Time Value of Money.
CFA @ ICON
Time Value of Money We someone is delaying their present consumption of money they should be rewarded for that. ... Concept Building Exercise.
Answers to Exercises
£50 wages of Lenny the part-time shop assistant
A Master Time Value of Money Formula Floyd Vest For Financial
These solutions are left as exercises. To solve for i for an Annuity requires an iterative program. See the references for some iterative calculator programs.
Chapter 2: Time Value of Money Practice Problems - umledu
Chapter 2: Time Value of Money Practice Problems FV of a lump sum i A company’s 2005 sales were $100 million If sales grow at 8 per year how large will they be 10 years later in 2015 in millions? PV of a lump sum ii
73 Methods for Solving Time Value of Money Problems
Time Value of Money KEY 1 Diane invests $500 today in an account earning 7 How much will it be worth in 5 years? $701 10 years? $984 20 years? $1935 Example for 5 years: Answer 2 Same facts as #1 except Diane finds an account earning 10 How much will it be worth in 5 years? $805 10 years? $1297 20 years? $3364 3
2 TIME VALUE OF MONEY - University of Scranton
2 TIME VALUE OF MONEY Objectives: After reading this chapter you should be able to 1 Understand the concepts of time value of money compounding and discounting 2 Calculate the present value and future value of various cash flows using proper mathematical formulas 2 1 Single-Payment Problems
Can a financial calculator solve a common time value of money problem?
Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year.
What is a constant in time value of money?
An important constant within the time value of money framework is that the present value will always be less than the future value unless the interest rate is negative. It is important to keep this in mind because it can help you spot incorrect answers that may arise from errors with your input.
What is the future value of $100 5 years from now?
As an example, in the spreadsheet shown in Figure 7.3, we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63. By reversing this process, we can safely state that $127.63 received five years from now with a 5% interest (or discount) rate would have a value of just $100 today.
How do you conceptualize present value and future value problems?
A useful tool for conceptualizing present value and future value problems is a timeline. A timeline is a visual, linear representation of periods and cash flows over a set amount of time. Each timeline shows today at the left and a desired ending, or future point (maturity date), at the right.
Answers to Exercises
Chapter 2
Exercise 2.1
The types of assets held are shown in Table A2.1.
TABLE A2.1
BUSINESS ASSETS Ice cream Building Fairground ride manufacturer society operatorStock of ice cream Building Caravan
Machinery
Computer Ride
Refrigerator
Photocopier
Stock of tickets
Exercise 2.2
Table A2.2 lists the assets found in the Koo1Kur1s hairdressing salon, sorted into fixed and current. TABLE A2.2KOOLKURLS HAIRDRESSING SALON
FIXEDAND CURRENT ASSETS
Set of professional styling scissorsShampoo
Electric
hairdryersElectronic till
£10 owed by a customer £15 in the till
FixedCurrent
Fixed FixedCurrent
Current
231ExerciseU
The following is an assessment of the liabilities of Paws&CiawsPetshop:
• £50 wages of Lenny, the part-time shop assistant, for work he did during the previous weekThis is
listed as a prepayment under the heading CurrentLiabilities. It
is for work that has already been completed, that means the business has had the benefit of that work. Now the business owes this to Lenny and must pay him in the short run. • £300 owed to the wholesaler for cages and petfood purchased and delivered last month This is listed as a trade creditor under Current Liabilities. The business has already received the goods and therefore potentially had the benefits, but still owes the £300 to the supplier, which must be paid in the short run. • £15 for stationery ordered but not yet delivered This is not a Current Liability as the business has not yet received any benefit, neither have the goods been delivered nor has an invoice been received. • £300 overdraft facility agreed with the bank manager but not yet used.232 ANSWERS TO EXERCISES
This is not a Current Uability, as none of the potential benefit agreed has been made use of. An overdraft only becomes a liability when it is actually used and only to the extent to which it is used.Exerdse 2.4
"Explanation The capital of £82 000 represents the value of the owner's original investment in the business. This has long been spent on computer equipment, vans, stock of goods for resale and other things and at the balance sheet date only £2000 of the net worth of the business Is actually represented by cash.However, that does not mean that the rest
of the money has been wasted.It is not really gone. It has just taken on a
different form, that of the various assets.Figure A2.1 shows
the balance sheet as at 5 March 199X.FIGURE A2.1
ALLIED DOMECO PLC
BALANCE SHEET AS AT 5 MARCH 199X
Fixed Assets
Buildings
Plant and Machinery
Furniture and Fittings
Current Assets
StockDebtors
CashCreditors: due within one year
Trade Creditors
Net Current Assets
Total Assets
less Current LiabilitiesCreditors: due after one year
Long-term Bank Loan
Capital
Share Capital
Retained Profit
£m 10001000
150
2150
1700
£m 2400
1300
300
4000
450
(1)
4450 (2)
27001750 (3)
1500250
1750
Explanation
(1) Net current assets= Current assets -Creditors (due within one year)
(2) Total assets less Current liabilities = Fixed assets +Current assets -Creditors (due within one year)
(3) This is the Net assets figure. Net assets = Fixed assets + Current assets -Creditors (due within one year)-Creditors (due after one year)There is a
new entry 'Creditors: due after one year £1 000' on the balance sheet. This is matched by a £1000 increase in the 'Bank and cash' entry. (b) The correct answer is (D). The entry for 'Stock' has increased by £1000. This is matched by a corresponding increase of £1000 in the entry under 'TradeCreditors'.
(c) The correct answer is (C).Explanation
The entry for 'Stock' decreases by £1000. At the same time, the entry for 'Bank and cash' increases by £1500. The surplus is shown in the capital section as 'Retained profit' £500.Chapter 3
Elerdse 3.1
The completed cash flow statement is shown in Figure A3.1.FIGURE A3.1
JONATHAN S S'iVEETS
CASH FLOW 1 MAY TO 31 MAY 199X
Opening Balance 50
Receipts
CashSales 1100
Payments
NewSupplier 500
Rent Warehouse 300
Wages Staff 360
Salary
Director 500
Closing Balance (510)
Stakeholder group Benefit
Customers If the business holds sufficient cash, it can make sure there is enough ice cream in stock StaffThe wider
communityIf the business makes sufficient
profit, it can invest in developing new exciting flavoursIf the business holds sufficient cash, it
can pay staff promptlyIf the business makes sufficient
profit, it can offer good benefits, for instance pensions and private health insuranceIf the business holds sufficient cash, it
can meet its bills for rates promptlyIf the business makes sufficient
profit, it can afford to support local charities The completed profit and loss account is shown in Figure A3.2.ANSWERS TO EXERCISES 233
FIGURE A3.2
JONATHAN S SWEETS PROFIT AND LOSS
ACCOUNT 1 MAY TO 31 MAY 199X
Sales 2600
Cost of Goods Sold 1100
Gross Profit 1500
Expenses
Rent 300
Wages Staff 360
Salary
Director 500
Trading Profit 340
(a) The correct answer is (C). The calculations are shown in Figure A3.3.FIGURE A3.3
JANINE SWIFTS DRIVING SCHOOL CASH FLOW
STATEMENT 1 SEPTEMBER TO 3 SEPTEMBER 199X
Opening
Balance 300
Receipts
Sale of Highway Code 10
Cash for Lessons 100
Payments
Purchase
of Highway Code 5Petrol 55
Advertisement 15
Closing Balance 335
(b) The correct answerIs (B).
The calculations are shown in Figure A3.4.FIGURE A3.4
JANINE SWIFTS DRIVING SCHOOL
PROFIT
AND LOSS ACCOUNT 1 SEPTEr.IBER TO
3 SEPTEMBER 199X
SalesExpenses
Highway Code
Petrol
Net Trading Profit £
1105 25
80
234 ANSWERS TO EXERCISES
Note that the matching concept is applied. Only the petrol actually used up to the end of 3 September 199X is included as an expense. Also the advertisement is not yet included as it will only be running the following week, therefore it cannot be matchef:l up with the current week's sales.Chapter 4
Exercise 4.1
The calculations of cost of goods sold and gross profit are shown in FiguresA4.1 and A4.2, respectively.
FIGURE A4.1
'WHITE LION' COST OF GOODS SOLD1 JULY TO 31 JULY. WORKINGS
Opening Stock (at valuation)
Purchases (at cost)
Closing Stock (at valuation)
Cost of Goods Sold
FIGURE
A4.2 £
11005640
576
6164
'WHITE LION' GROSS PROFIT 1 JULY TO
31 JULY WORKif\JGS
Sales (at selling price) 7520
Cost of Goods Sold (Figure A4.1) 6164
Gross Profit 1356
Exercise 4.2
Vineleaves Ltd Videos
(a) The closing stock calculations, using FIFO, WAC and LIFO are shown in Tables A4.1, A4.2 and A4.3, respectively. (b) The impact of the choice of stock valuation method on gross profit is shown in Figure A4.3. TABLE A4.1VINELEAVES L TO FIFO
Month Purchases
(at cost)July 900@£6.00
August
September
500@£8.00
October
Stock Issued
for sale (at valuation)700@£6.00
200@£6.00
200@£8.00
Stock after
transaction (at valuation)900@£6.00
200@£6.00
200@£6.00
500@£8.00
300@£8.00
Closing Stock= 300 * £8.00 = £2400
Under the FIFO method, the closing stock is valued at£2400TABLE A4.2
VINELEAVES L TO WAC
Month PurchaHS Stock Issued Stock after
(at cost) for sale transaction (at valuation) (at valuation) July900@£6.00 900@£6.00
August 700@£6.00 200@£6.00
September 500@£8.00 200 * 6.00 + 500 * 8.00 700@ 700 or 700@£7.43October 400@£7.43 300@£7.43
Closing Stock= 300 * £7.43 = £2229
Under the WAC method, the closing stock is valued
at£2229TABLE A4.3
VII\ELEAVES I TO LIFO
Month Purch .... Stock Issued Stock after
(at cost) for sale transaction (at valuation) (at valuation)July 900@£6.00 900@£6.00
August 700@£6.00 200@£6.00
September 500@£8.00 200@£6.00
500@£8.00
October 400@£8.00 200@£6.00
100@£8.00
Closing Stock= 200 * £6.00 + 100 * £8.00 = £2000 Under the LIFO method, the closing stock is valued at£2000FIGURE A4.3
VINE LEAVES L TO
TRADING ACCOL.,I\ T 1 JULY TO 31 OCTOBER 199X
FIFO WAC LIFO
Sales 18300 18300 18300
Opening Stock 0 0 0
+ Purchases9400 9400 9400
-Closing Stock 2400 2229 2000Cost of Goods Sold 7000 7171 7400
Gross Profit 11300 11129 10900
Exercise 4.3
(a) The correct answer is (C). The workings are shown in Table A4.4 and Figure A4.4. (b) The correct answer is (A).The workings are shown in Table A4.5.
(c) The correct answer is (B).ANSWERS TO EXERCISES 235
TABLE A4.4
CARDSRUS FIFO STOCK CALCULATIONS
Date Purchases Stock Issued Stock after
(at cost) for sale transaction (at valuation) (at valuation)1 Jan 400@£0.50
2 Jan 650@£0.65 400@£0.50
650@£0.65
3 Jan 100@£0.50 300@£0.50
650@£0.65
Closing Stock is valued at
300 * £0.50 + 650 * £0.65 = £572.50
FIGURE
A4.4CARDSRUS COST OF GOODS SOLD. WORKINGS
Opening Stock
Purchases
Closing
StockCost of Goods Sold
TABLE A4.5
£200.00
£422.50
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