Assignment: Accounting Verbiage
Overview
Respond to three questions and solve three computational problems about time value of money (TMV) as it applies to single cash flow.
Time value of money (TVM) is the foundation of mathematical finance. It is important to be able to demonstrate how the TVM concept can be applied to corporate finance, as well as to personal finances. It addition, knowing how to apply various technical terms used in finance, such as discount rate, present value, and future value, is a useful skill.
Instructions
In a Word document, respond to the following. Number your responses 1-3.
o Explain the concept of cash flow in corporate finance.
o Explain how present value and future values are related.
o Explain how present values are affected by changes in interest rates.
Problems
In either a Word document or Excel spreadsheet, complete the following problems.
o You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
o If you choose to solve the problems algebraically, be sure to show your computations.
o If you use a financial calculator, show your input values.
o If you use an Excel spreadsheet, show your input values and formulas.
In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
Unless otherwise directed, assume annual compounding periods in the computational problems.
o If you deposited $250 in your savings account today, and the bank pays 4 percent interest per year, how much would you have in your savings account after 9 years?
- Recalculate the account balance using a 6 percent interest rate and a 7 percent interest rate.
o A $450 deposit earns 6 percent interest in the first year, 3 percent interest in the second year, and 7 percent interest in the third year. What is the future value at the end of the third year?
o What is the annual rate of return for an $8,000 investment if in five years it grows to $12,500?
- Assuming the growth occurred in six years and then eight years, recalculate the rate of return for these two scenarios.
Format your assignment according to the following formatting requirements:
o The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
o The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
o Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.