Question

5. (8 points) Calculate the following time value of money problems.a. What is the future value of 22 periodic payments of $7,520 each made at the beginning of each period and compounded at 8% per period?b. What would you pay for a $500,000 face value bond that matures in 15 years and pays $40,000 a year in interest (end-of-period payments) if you wanted to earn a yield of 9%.c. Mike Finley wishes to become a millionaire. His money market fund has a balance of $555,264.50 and has a guaranteed interest rate of 4%. How many years must Mike leave that balance in the fund in order to get his desired $1,000,000?d. Andrew Bogut just received a signing bonus of $1,000,000. His plan is to invest this payment in a fund for 8 years (his planned retirement date). If Bogut plans to establish the AB Foundation once the fund grows to $1,850,930, what annually compoundedinterest rate must he earn to achieve his goal?

5. (8 points) Calculate the following time value of money problems. a. What is the future value of 22 periodic payments of $7,520 each made at the beginning of each period and compounded at 8% per period? b. What would you pay for a $500,000 face value bond that matures in 15 years and pays $40,000 a year in interest (end-of-period payments) if you wanted to earn a yield of 9%. c. Mike Finley wishes to become a millionaire. His money market fund has a balance of $555,264.50 and has a guaranteed interest rate of 4%. How many years must Mike leave that balance in the fund in order to get his desired $1,000,000? d. Andrew Bogut just received a signing bonus of $1,000,000. His plan is to invest this payment in a fund for 8 years (his planned retirement date). If Bogut plans to establish the AB Foundation once the fund grows to $1,850,930, what annually compounded interest rate must he earn to achieve his goal?

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Answer 1

X Fox 5 (a) - AB EF 5 (a) $ 7,520 22 periodic payment periods interest rate future value 8% $ 450,397.58 5(b) face value annual interest payment yield rate years payment that should be made for the bond $ 500,000 $ 40,000 9% $ 459,696.56 5 future value required present value interest rate years Mike must leave the balance in the fund $ 1,000,000 $ 555,264.50 4% 15 years 15(d) $ 1,000,000 investment amount (present value) years required balance in fund (future value) annual compound interest required $ 1,850,930 8%

5 (a) the future value shall be $450,397.58

5 (b) payment that should be made for the bond is $459,696.56

5 (c) years Mike must leave the balance in the fund is 15 years

5 (d) annual compound interest required is 8%

for formulas and calculations, refer to the image below -

B2 X for 5 (a) AB E 5 (a) 7520 periodic payment periods interest rate future value 0.08 --FV(D4,D3, D2,0,1) face value 500000 annual interest payment 40000 yield rate 0.09 years payment that should be made for the bond |--PV(D9,D10, D8, D7) future value required 1000000 present value 555264.5 interest rate 0.04 years Mike must leave the balance in the fund =NPER(D15,0,D14,-D13) years 5(d) 1000000 investment amount (present value) years required balance in fund (future value) annual compound interest required 1850930 =RATE(D19,0,D18,-D20)

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