| Problem 1 Future Value of Investment |
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| If a firm has $250,000 to invest and can earn 8.5%, compounded annually, how much will the firm have after two years? |
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| Rate | |||||||||||
| Nper | |||||||||||
| PMT | |||||||||||
| PV | |||||||||||
| Type | |||||||||||
| FV | |||||||||||
| 8.50% | |||||||||||
| 2 | |||||||||||
| $0 | |||||||||||
| $250,000 | |||||||||||
| 0 | |||||||||||
| $294,306.25 | |||||||||||
| Problem 2 Future Value of Retirement Account |
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| A selfemployed person deposits $1,250 annually in a retirement account that earns 5.5%. |
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| What will be the account balance at age 62 if the savings program starts when the individual is age 50? |
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| Rate | |||||||||||
| Nper | |||||||||||
| PMT | |||||||||||
| PV | |||||||||||
| Type | |||||||||||
| FV | |||||||||||
| 5.50% | |||||||||||
| 12 | |||||||||||
| $0 | |||||||||||
| $1,250.00 | |||||||||||
| 0 | |||||||||||
| $21,608.50 | |||||||||||
| How much additional money will be in the account if the saver defers retirement until age 66 and continues the annual contributions u |
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| Hint: First calculate the FV of the account at age 66 and then subtract the FV determined above (at age 62) to arrive at the additional |
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| Rate | |||||||||||
| Nper | |||||||||||
| PMT | |||||||||||
| PV | |||||||||||
| Type | |||||||||||
| FV | |||||||||||
| 5.50% | |||||||||||
| 16 | |||||||||||
| $0 | |||||||||||
| $1,250.00 | |||||||||||
| 0 | |||||||||||
| $32,495.50 | |||||||||||
| $10,887.00 Additional money saved if the contributions continue until age 66 |
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| The first part is a repeat of 1a. |
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| How much additional money will be in the account if the saver discontinues the contributions at age 62, but lets it build up until retirem |
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| Hint: First calculate the FV of the account at age 62, then utilize the FV of the account at age 62 as the PV in the FV calculation for th |
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| Finally, subtract the FV of the account at age 62 from the FV of the account with no additional contributions to arrive at the additiona |
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| Rate | |||||||||||
| Nper | |||||||||||
| PMT | |||||||||||
| PV | |||||||||||
| Type | |||||||||||
| FV | |||||||||||
| 5.50% | |||||||||||
| 12 | |||||||||||
| $0 | |||||||||||
| $1,250.00 | |||||||||||
| 0 | |||||||||||
| $21,608.50 | |||||||||||
| Rate | |||||||||||
| Nper | |||||||||||
| PMT | |||||||||||
| PV | |||||||||||
| Type | |||||||||||
| FV | |||||||||||
| 5.50% | |||||||||||
| 4 | |||||||||||
| $21,608.50 | |||||||||||
| 0 | |||||||||||
| $608.50 | |||||||||||
| $26,769.14 Additional money saved if contributions stop at age 62, but the money keeps growing until age 66. |
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| Problem 3 Present Value of Savings Account |
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| A father has decided to set aside a one time lump sum for college that will amount to $60,000 by the time |
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| his 5 year old is 18 years old (13 years). Using 8% as the rate and assuming no further investments will be made,how much must the father invest today in order to have $60,000 in 13 years? |
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| Rate | |||||||||||
| Nper | |||||||||||
| PMT | |||||||||||
| FV | |||||||||||
| Type | |||||||||||
| PV | |||||||||||
| 8.00% | |||||||||||
| 13 | |||||||||||
| 0 | |||||||||||
| $60,000.00 | |||||||||||
| 0 | |||||||||||
| $22,061.88 | |||||||||||
| Problem 4 Home Loan | |||||||||||
| A couple borrows $935,000 for 7 years for the purchase of a vacation home at an interest rate of 7%. |
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| The loan requires that the interest and principal be paid in equal, annual payments. |
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| The interest is determined on the declining balance that is owed. |
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| What are the required annual payments on the loan? |
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| Rate | |||||||||||
| Nper | |||||||||||
| PV | |||||||||||
| FV | |||||||||||
| Type | |||||||||||
| PMT | |||||||||||
| Yearly payment owed | |||||||||||
| How much is the principal loan balance reduced by during the first year? |
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| Hint: To determine the principal paid in year 1, subtract the interest paid in year 1 from the total yearly payment. |
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| Rate | |||||||||||
| Principal loan value | |||||||||||
| Interest paid in year 1 | |||||||||||
| Total payment made in year 1 | |||||||||||
| Principal paid the first year | |||||||||||
| Problem 5 Lease Payments | |||||||||||
| A company leases equipment for 7 years. |
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| The equipment costs $28,000 and the owner wants to earn 9.5% on the lease. |
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| What should be the required lease payments? |
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| Rate | |||||||||||
| Nper | |||||||||||
| PV | |||||||||||
| FV | |||||||||||
| Type | |||||||||||
| PMT | |||||||||||
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