Question

Hints for Solving TVM Problems 1. Use the following chart. One field will be not applicable and one field will be unknown and will need to be solved. Present Value $3,000 Future Value ? Payment N/A Number of Periods 10 years Interest Rate 12% 2. Always multiply the amount by the factor unless you are solving for the payment. For example, with the data above, multiply $3,000 by the FV factor (10,12%). 3. If a problem compounds interest monthly, quarterly or semi-annually (anything other than annually), you will need to multiply the years times the number of compounding periods and divide the interest rate by the number of compounding periods. For example, with the data above, if the interest was compounded quarterly, you would multiply 10 years times 4 periods per year (or 40 total periods) and divide the annual interest rate of 12% by 4 periods per year (or 3% quarterly). 4. A visual timeline of cash flows makes difficult problems more manageable. TIME VALUE OF MONEY PR EMS 1. Fill in the missing amount in each independent column: A, B, C (TVM of a Single Sum): Present Value Years Interest Rate Future Value A (Annual) $15,000 6 4% ? B (Semi-Annual) $12,000 10 10% ? C (Annual) ? 15 8% $25,000

Answer 1

Please find below handwritten notes

DATE rime Value of Money A (Annual) $15,000 Present Value = Years Interest Rate Future value = 4 %. ? Future value = present value x E VEG, 4%) . D = $15,000 x12653 = $ 18,929.5 Cos) $18,980 B(semi - Annual) Present value = $ 12,000 Years Interest Rate = 10% Future value - Present value X (FVF x(FVF ora , lot) = $12,000 X (FVF 20,52) 2 $12,00 0 X 2.6533 $31,840 C(Annual) Years = 15 Interest Rate = 8 % Future value = $25,000 Present value = Future Value X (PV F 15, 87.) = $25,000 X 0.3152 $7,880