Question

Q1 - Describe N,I/Y,PV,PMT, and FV.

Q2 – Why is there one negative sign among the last three listed in Q1?

Q3 – What is the difference between compounding and discounting?

Q4 – What is an annuity? What are the different types of annuities? When are payments made?

Q5 – What is a perpetuity? What is the relationship between PV and Interest?

Q6 – Does FV get larger or smaller based off monthly compounding compared to quarterly compounding?

Q7 – Will the effective annual rate ever be equal to the nominal (quoted) rate?

Q8 – What is the future value of an initial $18,300 after 16 years if it is invested in an account paying 7.25% interest?

Q9 – What is the present value of $6666 to be received in 12 years if the interest rate is 13.55%?

Q10a – Sometimes we need to find out long it will take money to grow to some particular amount. For example, if a company’s sales are growing at 12% per year, how long will it take sales to triple?

Q10b – If you want the investment to quadruple in 12 years, what interest rate must it earn?

Q11a – What is the future value of a 6-year ordinary annuity of $1350 if the interest rate is 10.5%?

Q11b – What is the present value of the annuity? Hint: Solve for PV.

Q11c – What is the future value and present value if the annuity were an annuity due? Solve.

Q12 – What is the present value of the following uneven cash flow: 1145,1345,1745,-450? The interest rate is 3%.

Q13 – Define the stated or quoted, or nominal rate and the periodic rate.

Q14 – What is the future value of 680 after 10 years under 24% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding?

Q15 – What is the effective annual rate? What is the EFF% or EAR for a nominal rate of 5% compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?

Q16 – Construct an amortization schedule in excel for a $60,000 mortgage with an 2% annual rate loan with 5 installments. Show proof of the first four years. Use Figure 4-11 as an example.

Answer 1

Solution :- (1)

N = It stands for number of Payments received in annuity either it may be annually or semiannually or monthly etc.

I/Y = It Stands for interest per year . Which means the rate of return per year .

PV = It stands for Present Value . Which means the total amount of loan today which which we need to pay annually

PMT = It is the Payment which we need to pay in a proper sequence in case of annuity

FV = It is the Future Value . Which we consider when we can deposit money and the money we get return after a specific time at lumpsum

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