Question

You have applied for a job with a local bank. As part of its evaluation process, you must take an examination of the time value of money following questions. Please show your work. (Identify N. IV, PV, PMT, and PV) icon the 1. What's the future value of $100 after 3 years if it earns M. annual compounding? 2. What's the present value of $100 to be received in 3 years of the interest rate is 8. annual compounding 3. What annual interest rate would cause $1,000 to grow to $2,000 in 8 years? 4. If a company's sales are growing at a rate of 7.2% annually, how long will it take sales to double? 5. What is the present value of a 6 year, 5100 ordinary annuity if the annual interest rate is ? 6. What is the EAR corresponding to a nominal rate of 8% compounded semiannually? Compounded quarterly Compounded daily 7. Your client is 40 years old and she wants to begin saving for retirement with the first payment to come one year from now. She can save 55.000 per year: and you advise her to invest it in the stock market, which you expect to provide an average return of 9 in the future. If she follows your advice how much money will she have at 657 8. You have 550,000 to put as a down payment on a new house that cost $350,000, and you have been quoted the following terms: 5 Annual Percenta Rate (APRI. for 30 years. If you decide to purchase this home, what will your monthly payment be? Additionally over the life of the loan what would you total interest expense be?

Answer 1

Attached herewith are the answers marked along with the parts

Part 8 Total cost 350 000 $ var Do con payment: 50,000 $ Year. 30 years loung Total Tostaiment = 30 X12 pontbly: Rate 57. pa. 0-4167 % per month S60 Loona 850 000 - 50.000 - $ 300,000 py of loan - we 300,000 5 Annuity Rate A - 1 L. (Itrate) |- . 0-4167% [ (it 0-4167%) 360 300000 = AX 186.2816 Annuity per month= $ 1610.47

Parti 100 Present Value (USD) Year Compounding Rate 800% Calculation: Future Value = Present Value (1Hnt)^(Year) =100*(1+.08)^3 125.97 Part 2 100 Future Value (USD) Year Compounding Rate 800% Calculation: Present Value = Future Value /(1+Int)^(Year) =100/(1+.08)^3 79.38 Part 3 Future Value (USD) Present Value (USD) Year 2,000 1,000 Future Value = Present Value *(1+int)^(Year) 2000 = 1000 *(1+x)^8 Solving the above, Value of X i.e. Interest rate is 9.06% Part 4 Future Value (USD) Present Value (USD) Rate 2 This is taken as $2 since the sale is to be doubles 1 The base year sales is assumed to be $1 7.20% Future Value = Present Value (1+int)^(Year) 2 = 1 (1+0.072) ^x Solving the above, Value of X is 9.97 years

Part 5 Years 6 years as 500 ordinary annuity - 100$ mi at the end) Rate Cannual 4.00% 9) U lo / Present Annuith X - value Rate L (ltr) | POO 100 0-04 X T - 1 riton 04 coro - 2500 * ||- I PU 2 524.2137

leart 6. - Effective annual = 1+ Nominal Rate rate (EARL 10 No. of compounding Here z EAR=87. for annual compounding in ☺ semiannual | Giul Quarterly (1) Daily Daily- 365 (EAR) > (semi) [it 0.087- 1 L 2 EAR (1+0.08 40 (Quarterly) L 4 Atoos-11 P oll 365 = 8.247.p. 2 7 8.337 p.a. 8162 pa

Part 7 saying per year = 5000 $ years till 65 years = 25 years 2 - nov Rate per annum = 9% anno - Future value of - Annuity X (H rate) Annuity Stival L to Rate - qulov mon XI (1 + 0.09) , DONC 0.09 POO 10 NO-O = 5000 x 7.623 x 20 : 005 122305 423504 $ 91.