[PDF] [PDF] Time Value of Money - answers

[PDF] Time Value of Money - answers

Answers of study exercises Calculate future value or present value or annuity ? (2) To cover these costs, she intends to save an equal amount of money at

[PDF] Solutions to Time Value of Money Practice Problems

Solutions to Time value of money practice problems Prepared by Pamela Peterson Drake 1 What is the balance in an account at the end of 10 years if $2,500 

[PDF] 2 TIME VALUE OF MONEY

Understand the concepts of time value of money, compounding, and discounting 2 The problems can be either future value or present value problems The You have calculated the present value of this bonus and the answer is $8000

[PDF] Chapter 4: Time Value of Money - KFUPM

At what time do these the cash flows occur and at what time do you need to evaluate them? The value of money problems may be solved using 1- Formulas Note: For an annuity due, simply multiply the answer above by (1+i) ( ) ( ) , So

[PDF] Chapter 2: Time Value of Money Practice Problems

until the bond matures 10 years from now, at which time it will be redeemed for $1,000 What interest At a rate of 8 , what is the present value of the following cash flow stream? $0 at Time 0; $100 at FV of a lump sum Answer: e EASY N

[PDF] Time Value of Money - CSUN

value of money The time value of money is at the center of a wide variety of financial Read your calculator manual We know the amount When doing problems, you always want to ask yourself 'is the answer reasonable?' It is easy to

[PDF] The Time Value of Money – Question Bank wwwiftworld LOa

LO d: Solve time value of money problems for different frequencies of LO e: Calculate and interpret the future value (FV) and present value (PV) of a single sum Solutions 1 A is correct The required rate of return is the minimum rate of  

[PDF] A Master Time Value Of Money Formula Floyd Vest - Consortium for

(1) FV = PV(1 + i)N, where FV is the future value, PV is the present value, i is the Exercises requesting formulas, answers, commentary, timelines, knowns, Derive from Formula 3, the TVM Formula in the Appendix of the TI 83 Manual for N,

[PDF] The Time Value of Money

This concept of a time value of money underlies much of the theory of financial Let's set up a simple worksheet to calculate the future value of a single sum Starting with Of course, we already know that the answer must be $1,000: In Excel 

[PDF] time value of money formula

[PDF] time value of money in financial management pdf

[PDF] time value of money lecture notes

[PDF] time value of money problems and solutions (doc)

[PDF] time value of money real life examples

[PDF] time value of money table

[PDF] time value of money table pdf

[PDF] time warner cable printable channel guide

[PDF] time zone

[PDF] time zone abbreviations list usa

[PDF] time zone activity

[PDF] time zone by city

[PDF] time zone calendar

[PDF] time zone change in usa 2019

[PDF] time zone conversion calculator

Nyenrode Business Universiteit

Answers of study exercises

Time Value of Money

© Nyenrode Center for Finance

- Dennis Vink 1

Time Value of Money

Problem 1

Happy Harry has just bought a scratch lottery ticket and won €10,000. He wants to finance the future study of his newly born daughter and invests this money in a fund with a maturity of 18 years offering a promising yearly return of 6%. 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+ i) n

Items:

- PV = €10,000 - i = 6% - n = 18 years

Answer:

FV = €10,000 * 1.0618

= €10,000 *

2.854339 = €

28,543.39

Problem 2

Rudy will retire in 20 years. This year he wants to fund an amount of €15,000 to become available in 20 years. How much does he have to deposit into a pension plan earning 7% annually? (1) Calculate future value or present value or annuity ? (2) Present value nn iFV )1(

Items:

- FV = €15,000 i = 7% - n = 20 years

Answer:

PV = €15,000 * (1/1.0720

= €15,000 * 0.258419 = €

3,876.29

Nyenrode Business Universiteit

Answers of study exercises

Time Value of Money

© Nyenrode Center for Finance

- Dennis Vink 2

Problem 3

The National Savings Fund promises a monthly 0.75% return if you deposit €100 per month for 15 consecutive years. What amount will be accumulated after those 15 years? (1) Calculate future value or present value or annuity (2) Future value = iiA n 1)1(*

Items:

- Annuity = €100 - n = 15 years ???!!! - i = 0.75% p/m

Answer:

FVAN = €100 * (1.0075

180

1) / 0.0075

= €100 * 378.40577 = €

37,840.58

Problem 4

Willy has just bought a house. She estimates that the roof will have to be renewed at a cost of €25,000 after 20 years. To cover these costs, she intends to save an equal amount of money at the end of each year, earning 6% annual interest rate. How much is such a yearly annuity? (1) Calculate future value or present value or annuity (2) Future value = iiA n 1)1(*

Items:

- FV = €25,000 - n = 20 years - i = 6%

Answer:

(FVAN) €25,000 =

A * ( 1.06

20 - 1 ) / 0.06 <=> €25,000 =

A * 36.7856 <=>

A = €25,000/ 36.7856 = €

679.61

Nyenrode Business Universiteit

Answers of study exercises

Time Value of Money

© Nyenrode Center for Finance

- Dennis Vink 3

Problem 5

Pete considers buying a house. Currently, he rents a place for €1,000 a month. The current monthly interest rate on mortgages is 0.5%. His planning period is 20 years. If he doesn't want to increase his housing costs, what amount of mortgage is available for his purchase? (Neglect any tax effects here). (1) Calculate future value or present value or annuity (2) Present value = iiA n )1(11

Items:

- A = €1,000 - i = 0.5% per month - n = 20 ??!

Answer:

PVAN = €1,000 *

[( 1 - (1/ 1.005 240
)) / 0.005] = €1,000 * 139.5808 = €139,580.80

Problem 6

Liphips Ltd has just paid a dividend per share of €1.20. Shares are valued only on the basis of expected dividends. An annual sustainable growth of dividends of 4% is assumed. The appropriate discount rate (i) is 10% per year. The planning horizon is limited to 20 years.

Compute the share value.

(1) Calculate future value or present value or annuity (2) Present value = giig A n 111

Items:

- A = €1.20*1.04 = 1.248 - i = 10% annually - g = 4% annually - n = 20

Answer:

(PVGRAN) (1.20 * 1.04 ) * [1 (1.04 20 / 1.1 20 ) / (0.1

0.04)] => 1.248 * 11.238 = 14.03

Nyenrode Business Universiteit

Answers of study exercises

Time Value of Money

© Nyenrode Center for Finance

- Dennis Vink 4

Problem 7

Compute the share value of a company paying a dividend of €3.60 per year over infinite maturity, with expected zero growth. The discount rate (i) is assumed to be 12% yearly. (1) Calculate future value or present value or annuity (2) Present value = iA

Answer:

3.60 / 0.12 =

30

Problem 8

Centuries ago, rich families in the province of Friesland established a fund to further welfare and education. From this fund, only the interest revenue was allowed to be spent, in order to keep the principal unattached. Assume the fund has amounted to €12 million and market interest rate (i) is 6% annually. What would be the perpetuity (or present value of the fund) endowed to the society? (1) Calculate future value or present value or annuity (2) Present value = iA

Answer:

0.06 *

12 million / 0.06 =

12 million.

Nyenrode Business Universiteit

Answers of study exercises

Time Value of Money

© Nyenrode Center for Finance

- Dennis Vink 5

Problem 9

Calculate the value of a constant cash flow of €500 a year with a growth of 4%, measured over an infinite period at a discount rate (i) of 10%. (1) Calculate future value or present value or annuity ? (2) Present value = giA1*

Answer:

500 * (1.04) / (0.10

-0.04) = 8,666.67

Problem 10

Compute the effective yearly rate if the monthly rate is 1%. 11 m n e mii

Answer:

- nominal (APR) => 1% * 12 = 12%. - effective => (1.01 12 )-1 (*100%) = 12.68%.

Problem 11

Compute the quarterly interest rate concerning an effective annual rate of 12% and a nominal annual rate of 12%.

Answer:

Quarterly interest rate is: (1.12

(1/4) -1) *100% = 2.87%

Additional:

If the annual percentage rate is 12% concerning monthly compounding, what is then the effective annual rate? 11 m e mAPRi

Answer:

[1 + (12%/12)] 12 -1 =12.68%.

Nyenrode Business Universiteit

Answers of study exercises

Time Value of Money

© Nyenrode Center for Finance

- Dennis Vink 6 What is then the effective rate for the first quarter?

Answer:

[1 + (12%/12)] 3 -1 = 3.03%.

Problem 12

A company buys a piece of equipment for €2 million on

January 1. The expected useful life is

6 years and the salvage value is estimated zero. The company intends to replace the

equipment identically. The average expected price increase is 8% yearly. For this purpose, the company creates a special fund with annual equal payments at the end of each year during the lifetime. Cost of capital and earnings of the fund (i) is 10% per year.

Compute the annual

payment into the fund. (1) Calculate future value or present value or annuity ? (2) Future value = iiA n 1)1(*

Answer:

Price at replacement time (or future value) => €2,000 x 1.08 6 = €3,174

FVAN =>

€3,174 =

A * [(1.1)

6 - 1] / 0.1 <=>

A = €3,174 / 7.71561 = €411.37

quotesdbs_dbs14.pdfusesText_20