Financial Ratios and Basics of Time Value of Money

Financial Ratios and Basics of Time Value of Money (TVM)

*Complete the problems from Module 3 and Module 4 in an Excel spreadsheet. Be sure to show your work to receive credit; no hard keys.

Problem 4-1: Compound Interest

To what amount will the following investments accumulate?

1. 4,500 SAR invested for 8 years at 10% compounded annually
2. 10,000 SAR invested for 10 years at 10% compounded annually
3. 8,000 SAR invested for 7 years at 12% compounded annually
4. 20,000 SAR invested for 6 years at 5% compounded annually

Problem 4-2: Future value calculations

You are hoping to purchase a house in the future and recently received an inheritance of 100,000 SAR.

You like to use your inheritance for a down payment for the house.

1. If you use your inheritance in an account that generates 6% returns compounded annually, how many years will it take before your money grows to 750,000SAR?
2. If you let your money grow for 15 years at 8%, how much will you have in your account?

Problem 4-3: Present value calculations

What is the present value of the following future amounts?

1. 15,500 SAR received from 5 years from now at 8%.
2. 105,500 SAR received from 10 years from now at 10%
3. 35,500 SAR received from 15 years from now at 12%.
4. 10,500 SAR received from 8 years from now at 7%.

Problem 4-5: Present value of annuity calculations

What is the present value of a 5-year annuity that pays 800SAR, given a 8% discount rate?

Problem 4-6: Future value of annuity calculations

Find the future value at the end of year 5 of an annuity that pays 800SAR

per year for 5 years compounded at 8% annually. What would be the future value of this annuity?

Problem 4-7: Annuity Payments

You want to have 1,000,000SAR in 30 years by making equal end-of-the-year deposits into a tax-deferred account paying 7.75% annually. What annual amount should you deposit?