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Class Exercise-Time Value

1. If you put 2,200 in a savings account at the beginning of each year for 10 years
and then allow the account to compound for an additional 10 years, how much
will be in the account at the end of the 20th year? Assume that the account earns
10% and round to the nearest 10.
2. What is the value on December 31, 2012 of the following cash flows? (Use a
10% discount rate and round to nearest 10).
Date Cash Received
01/01/08
01/01/09
01/01/10
01/01/11
01/01/12

Amount of Cash
10000
10000
10000
10000
10000

3. How many years will it take for an initial investment of 500 to grow to 844 if it
is invested today at 9 percent compounded annually?

4. You are planning to retire in 40 years. Currently, the typical house that you plan
to purchase costs 300,000, but you expect inflation to increase the price of the
house at a rate of 5 percent over the next 40 years. In order to buy the house
upon retirement, how much must you save each year in equal annual end-ofyear deposits if you can earn 10 percent annually?

5. How much must you deposit at the end of each of the next 10 years in a savings
account paying 8 percent annually in order to have 20,000 saved by the end of
the 10th year?
6. Recently you borrowed 800,000 to buy a new car and you will pay it back in
equal annual payments which begin today and continue to be payable at the
beginning of each year for a total of 5 years. Interest on the loan is 8 percent.
What is the amount of the loan payment?
7. An investment carries a nominal interest rate of 12 percent annually, but interest
on the investment is actually compounded semiannually. What is the actual
annual percentage yield on the investment?

8. Assume that you have just won the Reader's Digest sweepstakes and have a
choice between three alternative prizes, or options. With option 1, you would
receive 500,000 now. With option 2, you would receive 45,000 per year in
perpetuity. With Option 3, you would receive 200,000 now and 600,000 at the
end of 10 years. If the appropriate discount rate is 10%, which option should
you choose?

9. Assume that you borrowed 3,000 and plan to repay it in 12 monthly installments
of 300 that are paid at the beginning of each month. What is the annual interest
rate you would actually pay on this loan?
10. Assume that you purchased a boat for 25,000 and pay 5,000 down and agree to
pay the rest over the next seven years in seven equal annual payments that
include principal payments plus 11 percent compound interest on the unpaid
balance. The payments are paid at the end of the each year. What will be the
amount of each payment?

11. Assume that you have the assignment to examine three investment alternatives,
A, B and C. The cash flows from these three investments are as follows:

12. Assuming a 15 percent discount rate, what is the present value of each
investment
A: 33,522; B: 21,638; C: 32,784.
A: 43,522; B: 31,638; C: 42,784.
A: 53,522; B: 41,638; C: 52,784.
A: 63,522; B: 51,638; C: 62,784.
13. Using the TABLE function in Excel Fill the below table with the difference
between the compounding and discounting factors for the specified periods as
given in the table?

5%
10%
12%
16%
20%
22%
50%
1







5







10







15







20







25







30







14. Using either solver or Goal Seek in Excel find the deposit amount which can
sustain your withdrawals for the required period?.

Year
Cash Flows (Rs)
0-10
Deposit @ 10%
0-10
42000 increasing withdrawal @ 8% (Annual Inflation)
11-20
60000 increasing withdrawal @ 11%(Annual Inflation)