PSP 3301

HOUSEHOLD FINANCIAL MANAGEMENT

ASSIGNMENT 9

‘Time Value of Money’

Objectives

1. To understand the concept of the time value of money

2. To understand the time value of money calculation

Please read the following questions carefully and answer the questions accordingly.

Questions

1. Find the values for the following:

a) Future value of RM600 compounded for 1 year at 8%.

b) Future value of RM800 compounded annually for 10 years at 6%.

c) The present value of RM1,500 due in 1 year at a discount rate of 6%.

d) The present value of RM10,000 due in 8 years at a discount rate of 4%.

2. You have invested RM500 at a 15% rate of return compounded annually for 12 years. How much

will you have at the end of the 12th year?

3. Which of the following investment profiles should benefit you most?

a) RM4000 invested for 10 years compounded annually at 6% or;

b) RM2,000 invested for 10 years compounded annually at 9%.

4. You are planning to set aside some funds for your retirement. Hence, if you initiate a savings

program of RM7,000 per year in an investment return of 8% with annual compounding. What will

be the value of the retirement fund at the end of the 17th year?

5. 3. In 1997, your parents put RM5,000 into a special trust as your education investment for 20

years. How much will this trust be worth in the year 2017 if it has an interest rate of 12%?
6. Louis and Charles are twins that took different approaches in investing. Louis saved RM2,000 per

year for 10 years starting at the age of 22 and never added any more money to the account.

However, Charles saved RM2,000 per year for 20 years at the age of 35. Assuming the brothers

earned an 8% rate of return compounded annually, who had accumulated the most by the time

they reached 65 years old?

7. You want to begin a college fund for your newborn child, you hope to accumulate RM30,000 by

18 years from now. If the current investment opportunity gives you a 7% return rate compounded

annually, how much must you invest in a lump sum to achieve RM30,000 when needed?

8. You are entering into a contract that will provide you with an income of RM1,000 at the end of

each year for the next 10 years. If the annual interest rate is 7%, what is the present value for that

stream of payments?

Report Format

1. 1.5 or double spacing

2. Font size 12 (Times New Roman)
3. Submission date: 6th January 2021 via email: farwizah.fatin@yahoo.com
 One submission per group
 Please write “PSP3301-Assignment 9-Sub-group number” as your subject in the email
 Please write the full name and matric number of each group member on your answer
document
 Marks will be deducted for late submission