ASSIGNMENT
The purpose of this assignment is to solidify your understanding on the applications of the time value of money. The scores of this assignment will help in assessing the following learning goal of the course: "students successfully completing this course will be able to apply principles of time value of money to personal and corporate financial decisions."
Instructions:
You are required to use a financial calculator or spreadsheet (Excel) to solve 10 problems (provided on page 4) on the applications of the time value of money. You are required to show the following 4 steps for each problem (sample questions and solutions are provided for guidance):
(i) Develop the timeline (linear representation of the timing of cash flows)
(ii) Identify the time value of money variable (PV, FV, PMT, N or Rate) which needs to be calculated in the question.
(iii) Identify the values of the remaining four variables (PV, FV, PMT, N or Rate) from the question. Be sure to input positive or negative signs.
(iv) Calculate the correct value of the variable identified in step (ii).
Assignment Problems
1. On the day Harry was born, his parents put $1200 into an investment account that promises to pay a fixed interest rate of 6 percent per year. How much money will Harry have in this account when he turns 21 (round to nearest $1)?
2. At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14 years?
3. How much money must be put into a bank account yielding 6.42% (compounded annually) in order to have $1,671 at the end of 11 years (round to nearest $1)?
4. Biff deposited $9,000 in a bank account, and 10 years later he closes out the account, which is worth $18,000. What annual rate of interest has he earned over the 10 years?
5. How much money do I need to place into a bank account that pays a 1.08% rate in order to have $500 at the end of 7 years (round to nearest $1)?
6. Your grandparents deposit $2,000 each year on your birthday, starting the day you are born, in an account that pays 7% interest compounded annually. How much will you have in the account on your 21st birthday, just after your grandparents make their deposit (round to nearest $1)?
7. Auto Loans R Them loans you $24,000 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 9 percent. What is the monthly payment (round to nearest $1)?
8. Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make (round to nearest $1)?
9. You are ready to retire. A glance at your 401(k) statement indicates that you have $750,000. If the funds remain in an account earning 9.0%, how much could you withdraw at the beginning of each year for the next 25 years (round to nearest $1)?
10. If you wish to accumulate $200,000 in the child's college fund after 18 years, and can invest at a 7.5% annual rate, how much must you invest at the end of each year if the first deposit is made at the end of the first year (round to nearest $1)?