Time value of money (TVM) is the foundation of mathematical finance. This assignment is designed to show you how the TVM concept can be applied to corporate finance, as well as to personal finances. You will also learn various technical terms used in finance, such as discount rate, present value, and future value.
Answer the following questions and complete the following problems, as applicable. Unless otherwise directed, assume annual compounding periods in computational problems.
You may solve the following problems algebraically, or you may use a financial calculator or Excel spreadsheet. If you choose to solve the problems algebraically, be sure to show your computations. If you use a financial calculator, show your input values. If you use an Excel spreadsheet, show your input values and formulas.
Note:Ãƒâ€šÃ‚Â In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.
- "List and describe the purpose of each part of a time line with an initial cash inflow and a future cash outflow. Which cash flows should be negative and which positive" (Cornett, Adair, and Nofsinger, 2014, p. 91)?
- "How are the present value and future value related" (Cornett, Adair, & Nofsinger, 2014, p. 91)?
- "How are present values affected by changes in interest rates" (Cornett, Adair, & Nofsinger, 2014, p. 91)?
- "How much would be in your savings account in eight years after depositing $150 today, if the bank pays 7 percent per year" (Cornett, Adair, & Nofsinger, 2014)?Ãƒâ€šÃ‚Â
- Recalculate the savings account balance, using a 6 percent interest rate, and again, using an 8 percent interest rate.
- "A deposit of $350 earns the following interest rates: (a) 8 percent in the first year, (b) 7 percent in the second year, and (c) 5 percent in the third year. What would be the third year future value" (Cornett, Adair, & Nofsinger, 2014)?
- "Compute the present value of a $850 payment made in 10 years when the discount rate is 12 percent" (Cornett, Adair, & Nofsinger, 2014).
- Recalculate the present value, using an 11-percent discount rate, and again, using a 13-percent discount rate.
- "What annual rate of return is earned on a $5,000 investment when it grows to $9,500 in five years" (Cornett, Adair, & Nofsinger, 2014)?
- Recalculate the rate of return, assuming the growth occurred in four years, and again, assuming the growth occurred in six years.
Submit your completed assignment as an attachment in the assignment area. You may use either a Word document or an Excel spreadsheet for your work, but not both. Prior to submitting your assignment, review the Time Value of Money: Single Cash Flows Scoring Guide to ensure you have met all of the requirements and as a self-assessment of your work.
Cornett, M. M., Adair, T. A., & Nofsinger J. (2014).Ãƒâ€šÃ‚Â M: FinanceÃƒâ€šÃ‚Â (2nd ed.). New York, NY: McGraw-Hill.
|Due By (Pacific Time)
||02/28/2015 12:00 pm