Simple Interest versus Compound Interest (L01) Bank of Vancouver pays 7% simple interest on

1 Calgary pays 7% interest compounded annually. If you made a $6,000 deposit in each bank, ho
Bank of Calgary account at the end of nine years?

Bank of Vancouver Bank of Calgary

Rate 7% Rate 7%
PV $ 6,000.00 PV $ (6,000.00)
NPer 9 NPer 9

Interest 3780 FV $11,030.76

FV $ 9,780.00 Interest $5,030.76

Excess amount earned from Bank of Calgary $1,250.76

Calculating Interest Rates (L03) Assume the total cost of a university education will be $300,00
6 You currently have $65,000 to invest. What annual rate of interest must you earn on your inves
education?

FV $300,000.00
Nper 18 Years
PV $(65,000.00)
Rate ?
PMT 0

Rate 8.87%

Calculating the Number of Periods (1,03) At 6.5% interest, how long does it take to double your
7

Nper ?
Rate 6.5%
PV -4000 Lets Assume
FV1 8000 Double
FV2 16000 Quadruple

Nper1 11.01
 Nper2 22.01

Calculating Present Values (1.02) Normandin Inc. has an unfunded pension liability of $575 mil
10 value of the firm's stock, financial analysts want to discount this liability back to the present. If th
present value of this liability?

Nper 20 Years
Rate 6.80%
FV $ 575 Million
PV ?

PV $ (154.26) Million

Calculating Future Values (L01) Your coin collection contains 50 1952 silver dollars. If your gra
12 when they were new, how much will your collection be worth when you retire in 2060, assuming

PV $ (50) 1952 Silver dollars

Nper 108
Rate 4.10%
FV ?

FV $ 3,833.97

Calculating Rates of Return (L03) The "Brasher doubloon," which was featured in the plot of the
was sold at auction in 2014 for $4,582,500. The coin had a face value of $15 when it was first is
17 $430,000 in 1979. At what annual rate did the coin appreciate from its minting to the 1979 sale?
his purchase? At what annual rate did the coin appreciate from its minting to the 2014 sale?

FV2 $ 4,582,500 2014

PV $ (15) 1787
FV1 $ 430,000 1979
Nper1 192 minting to the 1979 sale
Nper2 227 minting to the 2014 sale
Nper3 35 1979 buyer
PMT 0
 Rate1 5.49% minting to the 1979 sale
Rate2 5.72% minting to the 2014 sale

Rate3 6.99% Annual rate the 1979 buyer earned

Calculating Present Values (L02) Suppose you are still committed to owning a $190,000 BMW
18 can achieve a 12% annual rate of return and you want to buy the car in nine years on the day y

Rate 12%
Nper 9 Years
FV $190,000.00
PV ?

PV $(68,515.90)

Calculating Future Values (LOl) You are scheduled to receive $15,000 in two years. When you
20 7.1% per year How much wtl you have in eight years?

FV $ 15,000.00 FV
Nper 2 Years Nper
Rate
PMT
PV

FV

Calculating the Number of Periods (L03) You expect to receive $10,000 at graduation in two ye
21 have $75,000. How long will you wait from now?

FV $ 10,000.00 FV
Nper 2 Years Rate
Nper
PMT
PV

Nper
Total Years 21.31
ncouver pays 7% simple interest on its savings account balances, whereas Bank of
e a $6,000 deposit in each bank, how much more money would you earn from your

niversity education will be $300,000 when your child enters university in 18 years.
erest must you earn on your investment to cover the cost of your child's university

ow long does it take to double your money? To quadruple it?

unded pension liability of $575 million that must be paid in 20 years. To assess the
his liability back to the present. If the relevanc disc.onl rate is 6.8%, what is the

s 50 1952 silver dollars. If your grandparents purchased them for their face value
when you retire in 2060, assuming they appreciate at a 4.1% annual rate?

which was featured in the plot of the Raymond Chandler novel The High Window,
ace value of $15 when it was first issued in 1787 and had been previously sold for
e from its minting to the 1979 sale? What annual rate did the 1979 buyer earn on
om its minting to the 2014 sale?
mitted to owning a $190,000 BMW (see Question 9). If you believe your mutual fund
y the car in nine years on the day you turm 30, how much must you invest today?

e $15,000 in two years. When you receive it, you will invest it for six more years at

?
6 Years
7.10%
0
$(15,000.00)

$ 22,637.48

ve $10,000 at graduation in two years. You plan on investing it at 11% until you

$ 75,000.00
11%
?
0
$(10,000.00)

19.31
 Present Value and Multiple Cash Flows (L01) Investment X offers to pay you $6,000 per year
2 pay you $8,000 per year for six years. Which of these cash flow streams has the higher prese
rate is 22%?

Investment X Investment Y
PMT $ 6,000.00 PMT
Nper 9 Years Nper
Rate1 5% Rate1
Rate2 22% Rate2
FV 0 FV

PV1 $(42,646.93) PV1

PV2 $(22,717.71) PV2

For 5% rate, the PV is higher for Investment X

For 22% rate, the PV is higher for Investment Y
Overall, th PV is higher for Investment X at 5% rate

Calculating Annuity Values (L01) Your company will generate $68,000 in annual revenue each
6 information database. if the appropriate interest rate is 8.5%, what is the present value of the s

PMT $ 68,000.00
Nper 7 Years
Rate 8.50%
PV ?
FV 0

PV ###

Calculating Perpetuity Values (L01) The Sutherland Life Insurance Co. is trying to sell you an
11 $30,000 per year forever. If the required return on this investment is 5.8%, how much will you

PMT $ 30,000.00
Rate 5.80%
Nper
PV ?
 FV 0

PV=Periodic Payment/ Required Rate

PV $517,241.38

Calculating EAR (L03) Royal Grandora Bank charges 13.2% compounded monthly on its busi
15 compounded semiannually. As a potential borrower, which bank would you go to for a new loa

Royal Grandora Bank First United Bank

Rate 13.20% Monthly Rate

EAR 14.03% EAR

Calculating Annuity Present Values (L01) Beginning three months from now, you want to be a
27 bank account to cover tuition expenses over the next four years. If the account pays .65% inte
in your bank account today to meet your expense needs over the next four years?

PMT $ 2,500.00 Each Quarter

Nper 4 Years
Rate 0.65% Per Quarter
PV ?
Nper 16 Quarter

PV $(37,873.60)

Calculating Annuities (L01) You are planning to save for retirement over the next 30 years. To
33 account and $400 a month in a bond account. The return of the stock accounc is expected to
you retire, you will combine your money into an account with a 9% return. How much can you
a 25-year withdrawal period? Assume that the APR is compounded monthly.

Stock Account Bond Account

Nper 30 Years Nper
PMT $ (800.00) Monthly PMT
Rate 10% Rate
Combined Rat 9% Rate Monthly
Rate Monthly 0.008 Nper
Nper 360 Months

FV ### FV

Total FV ###

Monthly PMT for 25 years

Nper 300
Rate 0.0075
PV ###

PMT $ 18,547.89 Per month withdrawal for 25 years

offers to pay you $6,000 per year for nine years, whereas Investment Y offers to
ow streams has the higher present value if the discount rate is 5%? If the discount

estment Y
$8,000
6 Years
5%
22%
0

$(40,605.54)
$(25,335.34)

e $68,000 in annual revenue each year for the next seven years from a new
what is the present value of the savings?

rance Co. is trying to sell you an investment policy that will pay you and your heirs
ment is 5.8%, how much will you pay for the policy?
 compounded monthly on its business loans. First United Bank charges 13.5%
ank would you go to for a new loan?

st United Bank
13.50% Semi-Annually

13.96%

onths from now, you want to be able Co withdraw $2500 each quarter from your
ars. If the account pays .65% interest per quarter, how much do you need to have
r the next four years?

ement over the next 30 years. To do this, you invest $800 a month in a stock
he stock accounc is expected to be 10%, and the bond accout will pay 6%. When
a 9% return. How much can you withdraw each month from your accout assuming
ounded monthly.

nd Account
30 Years
$ (400.00) Monthly
6%
0.005
360 Months
$401,806.02