Question

The following situations should be considered independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. John Jamison wants to accumulate $77,709 for a down payment on a small business. He will invest $39,000 today in a bank account paying 9% interest compounded annually. Approximately how long will it take John to reach his goal? 2. The Jasmine Tea Company purchased merchandise from a supplier for $45,102. Payment was a noninterest-bearing note requiring Jasmine to make five annual payments of $11,000 beginning one year from the date of purchase. What is the interest rate implicit in this agreement? 3. Sam Robinson borrowed $20,000 from a friend and promised to pay the loan in 10 equal annual installments beginning one year from the date of the loan. Sam's friend would like to be reimbursed for the time value of money at a 10% annual rate. What is the annual payment Sam must make to pay back his friend?

Answer 1

1. As per question we need to calculate N?

PV= -$39,000, FV= $77,709, I/Y= 9%, PMT=0, solving it through calculator, we get N=8

Client will be making one investment at the beginning so PV(present Value)= $39,000 and future value is given as per the fund he requires after certain year for down payment

2. As per question we need to calculate I/Y?

PV= 0, FV= $45,102, N= 5, PMT= -$11,000, solving it through calculator, we get I/Y= -10%

Client is making 5 payments of $11,000 annually and is getting future value(FV) of $45,102 only. so its a complete negative growth

3.As per question we need to calculate PMT= ? by including time value for money

PV= -$20,0000, FV= 0, N= 10, I/Y= 10%, solving it through calculator, we get PMT= -$3,255