Time Value of Money Calculator Homework

 

BA 324 Time Value of Money Calculator Homework Part I

Fall, 2020

 

Note: Please submit your scanned pdf or worddocument in one file and not broken up into multiple files.

 

Show all keystrokes (PV, FV, I/Y, & N) to receive full credit for correct answers and for partial credit on problems you may not get 100% correct.

 

1. What is the difference between nominal and effective interest rate?

 

 

 

 

 

 

2. If you invest $9,000 at 12% interest, how much will you have in 7 years?

 

 

 

 

 

 

 

3. How much must you invest at 9% interest in order to see your investment grow to $4,000 in 4 years?

 

 

 

 

 

 

 

 

4. If Sultan expects the investment to increase in value at a rate of 12% compounded annually for the next year. What is the effective interest rate?

 

 

 

 

 

 

 

5. What is the effective rate of return of a nominal interest rate of 6 % compounded semiannually?

 

 

6. What is the effective rate of return of a nominal interest rate of 6 % compounded quarterly?

 

 

7. What is the effective rate of return of a nominal interest rate of 6 % compounded daily?

 

 

 

 

(Questions 8-9). If Melody wants to purchase a house for $420,000 and finance $110,000 with either a 3.8%, 30-year mortgage or a 4.5%, 20-year mortgage.

 

• What is the effective interest rate on each of the above alternatives?

Note: Only compare the interest rates for the above two options based on monthly compounding.

 

 

 

• Which alternative would you recommend and why?

 

 

 

10. Hannah received an inheritance of $350,000. She expects to earn 10% annual interest, compounded monthly on her investments.

 

1. What is her effective interest rate?

 

 

 

1. What is her inflation-adjusted rate of return? Assume 2% inflation.

Note: Please use the effective interest rate from 15 a for this calculation.

 

 

 

1. If she can invest her inheritance in the stock market and expects to earn 8% on her investment annually, which investment option would you recommend and why?

 

 

 

 

11. What is the inflation adjusted rate of return (IARR) of an 8% investment rate and an inflation rate
    of 2% (round to the 2/100 decimal)?

 

 

 

12. What is the inflation adjusted rate of return (IARR) of a 5% investment rate and an inflation rate
    of 3% (round to the 2/100 decimal)?

 

 

 

 

 

 

 

13. What would be the value of a savings account started with $5,300, earning 2.5 percent (compounded annually) after 10 years?

 

 

 

 

 

 

 

(For questions 14-17).How much would you have to invest today to receive

 

14. $25,000 in 8 years at 10 percent compounded semiannually

 

 

 

 

 

 

 

 

15. $35,000 in 12 years at 13 percent compounded quarterly

 

 

 

 

 

 

16. $45,000 in 13 years at 14 percent compounded monthly

 

 

 

 

 

 

17. $55,000 in 15 years at 9 percent compounded daily

 

 

 

 

 

 

18. Jahana desires to have $80,000 eight years from now for her daughter’s college fund. If she will earn 4.5 percent (compounded annually) on her money, what amount should she deposit now?

 

 

 

 

 

 

 

19. What is the future value of $55,000 invested for 17 years at 5% compounded annually?

 

 

 

 

20. Grace received a coin collection worth $50,000 from her uncle in Jan, 2020.If it was worth $10,000 in 1994, what is her uncle’s rate of return on his investment?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21. How long will it take to double your money at 10% interest compounded annually?

 

 

 

 

 

 

22. Sylvia expects to receive $85,000 from a trust fund in 6 years. What is the current value of this fund if it is discounted at 9% compounded semiannually?

 

 

 

 

 

 

 

 

 

 

 

23. You want to be able to buy $ 100 of today’s goods in20years. How much would you need in 20years to accomplish this goal if inflation averages 3%?