WELCOM

E
Time Value of Money
(Case Study)

NAME ID NO:

Md. Mustafezur Rahaman 2018-3-95-005

Tanvin Mahmud 2018-2-95-038
Masuda Sharmin Nipu 2017-2-95-107
 1 Case
Step 1-
First we have to find out how much we need to pay for every year from the
beginning of her first grandchild’s college year to ending of the last
grandchild’s college year.
 Step-2
Now we need to find out the present value of this uneven cash flow to find out if
$40000 is enough to pay for all of their college fees. The interest rate is 12%
compounded annually.

So Mrs. Adele needed for the four scholarship is $33695.7 which is less than
$40000 that she has now. As we can say $40000 is sufficient to provide for the
four scholarship.
 2 Case
STEP1
• First we have to find out the future value of $2000
which they are depositing yearly in a IRA account at a
10% interest rate until their retirement day which is
within 10 years.

• So they will have

$31874.85 on their
retirement day from
their $2000 yearly
IRA deposit.
 STEP-2
• Now we have to find out what will be the present
value of $50000 on their retirement day. The time So on their retirement
duration is 20 years and the interest rate is 10%. day they will need
$7432.18 to make
$50000 after 20 years.
Now we can clearly see
that they will have extra
($31874.85 - $7432.18)
= $24442.67 on their
hand after buying their
desired annuity.
 3 Case

STEP 1
First we have to find out how much they need on 7th year for giving
$1500 for 30 years at the interest rate of 11%.
So we found out that they need $13040.68 for annual $1500 payment for next 30
years. Now we will add the down payment $50000 for the house with this
amount. They need ($13040.68+$50000) = $63040.68 on the seventh year to pay
the down payment and the installment for the house.

STEP-2
Now we have to find out how much they
have to save annually for the next 7
years at the interest rate of 11% to make
$63040.68 for the house.
They need to save $6443.72 per year
for 7 year to reach their goal of
$63040.68 to buy a new house.
4 Case

STEP 1
We have to find out the Present value of the $5000
annuity a year for 25 years at the rate of 12%. If the
result is greater than $40000 then we will accept the
offer if it’s not than we will decline the offer:
• The present value of $5000 annuity is $39215.69 which is lower than the money
he has now on hand ($40000). So he should not accept the offer.

STEP2
• Now we have to find out the Present Value of $125000 to see if it’s greater
than $40000. The interest rate will be 12% and 25 years
• He should not also accept this offer too. Because it is
way below than $40000.

• So we found out that both of the offer is non

profitable for him. But if taking any of this offer is
mandatory for him he should go for the annuity.
Because the deference between the Present value of
the annuity and the money on his hand is very low.