What is the value of an investment that pays $8,500 every other year

forever, if the first payment occurs one year from today and the discount rate is 1
compounded daily? What is the value today if the first payment occurs four year
Assume 365 days in a year.

T-1 T0
28632.06 0
FV 365 days ₹ 32,606.24
2 Year Rate (EAR) 29.69%
PV of Perpetuity at T-1 28632.06

T0

PV of Perpetuity
PV at T0 ₹ 22,077.81
discount rate is 13 percent
occurs four years from today?

T1 T2 T3 T4 T5 T6 T7
8500 0 8500 0 8500 0 8500

T1 T2 T3 T4 T5 T6 T7
8500 0 8500 0
28632.06
T8 T9 T10
0 8500 0

T8 T9 T10
8500 0 8500
One of your customers is delinquent on his accounts payable
balance. You’ve mutually agreed to a repayment schedule of $600 per month. Y
percent per month interest on the overdue balance. If the current balance is $18
will it take for the account to be paid off?
 of $600 per month. You will charge .9
current balance is $18,400, how long
Friendly’s Quick Loans, Inc., offers you “three for four or I knock on your
door.” This means you get $3 today and repay $4 when you get your paycheck i
else). What’s the effective annual return Friendly’s earns on this lending busines
brave enough to ask, what APR would Friendly’s say you were paying?
knock on your
ou get your paycheck in one week (or
n this lending business? If you were
were paying?
Audrey Sanborn has just arranged to purchase a $450,000 vacation home
in the Bahamas with a 20 percent down payment. The mortgage has a 7.5 perce
interest rate, compounded monthly, and calls for equal monthly payments over t
Her first payment will be due one month from now. However, the mortgage has a
balloon payment, meaning that the balance of the loan must be paid off at the en
were no other transaction costs or finance charges. How much will Audrey’s bal
eight years?

EMIs 360
APR 0.075
LOAN 360000 PV
EMI ₹ 2,517.17 Annuity

Loan Amortization Schedule

Repayment
Month Principal EMI Interest Principal
0 ₹ 360,000.00
1 ₹ 359,732.83 ₹ 2,517.17 ₹ 2,250.00 ₹ 267.17
2 ₹ 359,463.99 ₹ 2,517.17 ₹ 2,248.33 ₹ 268.84
3 ₹ 359,193.46 ₹ 2,517.17 ₹ 2,246.65 ₹ 270.52
4 ₹ 358,921.25 ₹ 2,517.17 ₹ 2,244.96 ₹ 272.21
5 ₹ 358,647.34 ₹ 2,517.17 ₹ 2,243.26 ₹ 273.91
6 ₹ 358,371.71 ₹ 2,517.17 ₹ 2,241.55 ₹ 275.63
7 ₹ 358,094.36 ₹ 2,517.17 ₹ 2,239.82 ₹ 277.35
8 ₹ 357,815.28 ₹ 2,517.17 ₹ 2,238.09 ₹ 279.08
9 ₹ 357,534.45 ₹ 2,517.17 ₹ 2,236.35 ₹ 280.83
10 ₹ 357,251.87 ₹ 2,517.17 ₹ 2,234.59 ₹ 282.58
 00 vacation home
ortgage has a 7.5 percent stated annual
monthly payments over the next 30 years.
ever, the mortgage has an eight-year
must be paid off at the end of year 8. There
much will Audrey’s balloon payment be in
Tom Adams has received a job offer from a large investment bank as a
clerk to an associate banker. His base salary will be $45,000. He will receive his
payment one year from the day he begins to work. In addition, he will get an imm
bonus for joining the company. His salary will grow at 3.5 percent each year. Ea
receive a bonus equal to 10 percent of his salary. Mr. Adams is expected to wor
What is the present value of the offer if the discount rate is 12 percent?

growing annuity 25 years

time growth salary bonus total fair value (use
0 10000 10000 ₹ 501,397.80
1 0.035 45000 4500 49500
2 0.035 46575 4657.5 51232.5
3 0.035 48205.13 4820.513 53025.64
4 0.035 49892.3 4989.23 54881.53
5 0.035 51638.54 5163.854 56802.39
6 0.035 53445.88 5344.588 58790.47
7 0.035 55316.49 5531.649 60848.14
8 0.035 57252.57 5725.257 62977.82
9 0.035 59256.41 5925.641 65182
10 0.035 61330.38 6133.038 67463.42
11 0.035 63476.94 6347.694 69824.64
12 0.035 65698.64 6569.864 72268.5
13 0.035 67998.09 6799.809 74797.9
14 0.035 70378 7037.802 77415.82
15 0.035 72841.25 7284.125 80125.38
16 0.035 75390.7 7539.07 82929.77
17 0.035 78029.37 7802.937 85832.31
18 0.035 80760.4 8076.04 88836.44
19 0.035 83587 8358.701 91945.72
20 0.035 86512.56 8651.256 95163.82
21 0.035 89540.5 8954.05 98494.55
22 0.035 92674.42 9267.442 101942
23 0.035 95918 9591.802 105510
24 0.035 99275.15 9927.515 109203
25 0.035 102750 10275 113025
estment bank as a
$45,000. He will receive his first annual salary
addition, he will get an immediate $10,000
3.5 percent each year. Each year he will
Adams is expected to work for 25 years.
ate is 12 percent?

add t0 to fair value

₹ 511,397.80

use fv function ₹ 8,693,795.48

You are serving on a jury. A plaintiff is suing the city for injuries
sustained after a freak street sweeper accident. In the trial, doctors testified that
years before the plaintiff is able to return to work. The jury has already decided i
plaintiff. You are the foreperson of the jury and propose that the jury give the pla
cover the following: (1) The present value of two years’ back pay. The plaintiff’s
the last two years would have been $42,000 and $45,000, respectively. (2) The
five years’ future salary. You assume the salary will be $49,000 per year. (3) $15
suffering. (4) $25,000 for court costs. Assume that the salary payments are equa
the end of each month. If the interest rate you choose is a 9 percent EAR, what
settlement? If you were the plaintiff, would you like to see a higher or lower inter

T-2 T-1
42000 45000
EAR 0.09
8.65% PV of salary
APR
(((1+EAR)^(1/12))-1)*12

FV of T-2 at T-1 ₹ 43,705.79 FV of T2 at T0

FV of T-1 at T0
ors testified that it will be five
ready decided in favor of the
ury give the plaintiff an award to
. The plaintiff’s annual salary for
ctively. (2) The present value of
per year. (3) $150,000 for pain and
yments are equal amounts paid at
ent EAR, what is the size of the
er or lower interest rate?

T0 T1 T2 T3 T4 T5
175000 49000 49000 49000 49000 49000

₹ 198,332.55

₹ 47,485.81
₹ 46,827.37
₹ 467,645.74
Pipe India owns an oil pipeline which will generate Rs 12 crore of cash incom
It has a very long life with negligible operating costs.
The volume of oil shipped will however, decline with The volume of oil shipped
The required rate of return is 12 percent for the company.
If the pipeline is used forever, what is its present value ?
If the pipeline is scrapped after 25 years, what is the present value of its cash
2 crore of cash income in the coming year. time and hence. Cash flows will decline by 3

e volume of oil shipped will however, decline with time and hence. Cash flows will declin

sent value of its cash flows ?

lows will decline by 3 percent per year.

Cash flows will decline by 3 percent per year.

 You have just joined the investment banking firm of Dewey, and Cheat- Em, Hollow
They have offered you two different salary arrangements. You can have $75,000 per
along with a $30,000 signing bonus today. If the interest rate is 10 percent-compoun

T0
T1-T24

Comparing at t0 Actual

Future value framework

FV at T24

1st offer is better in bot

heat- Em, Hollow.
have $75,000 per year for the next two years,You can have $55,000 per year for the next two
ercent-compounded monthly, which do you prefer?

Offer A Offer B
0 30000
75000/12 55000/12
1st month salary is reinveste
₹ -135,442.84 ₹ -99,324.75 last salary reinvested 0 time
₹ 135,442.84 ₹ 99,324.75 Salary
30000 Bonus
₹ 129,324.75 Total Pay

₹ -165,293.22 ₹ -157,826.76
₹ 165,293.22 ₹ 157,826.76 Saalry at T24 Bonus is included as PV here
er is better in both situat
0 per year for the next two years

t month salary is reinvested 23 times

st salary reinvested 0 times

onus is included as PV here / lumpsum