During the last week, Sundara has read about different situations that involve money, interest rate, and different amounts of time. She has gotten interested in the major effects that time and interest rates have on the amount of money necessary to do things and the signifi cant growth in the amount of money when a large number of years are considered. In all cases, the interest focuses on the amount of money at the end of the time period.
Information
The four situations are described here.
Manhattan Island was purchased in 1626 for $24. After 385 years in 2011, at 6% per year compounded interest, the current value must be very large.
B. At the age of 22, if she saved only $2000 per year for the next 10 years (starting next year) and made a return of 6% per year, by today’s standards, she would have accumulated a nice sum at the age of 70.
C. A corporation invested $2 million in developing and marketing a new product in 1945 (just after World
War II, this was a lot of money) and has made a steady net cash fl ow of $300,000 per year for some 65 years. Sundara estimated the annual rate of return must be quite good, especially given that she is lucky to earn 4% per year on her own investments these days.
D. A friend who is not good with money, went to a pawn shop and borrowed $200 for one week and paid $30 in interest. Sundara thought this might be a pretty good deal, in case she ever ran low on cash. However, she did not know whether the interest was simple or compounded monthly, and how much
Case Study Exercises
1. What is the annual interest rate for each situation? Include both the annual simple and the compound rates for situation D.
2. Calculate and observe the total amount of money involved in each situation at the end of the time periods compared to the starting amount. Is the ending amount larger or smaller than you would expect it to be prior to making any computations?
3. Think of a situation for yourself that may be similar toany of those above. Determine the interest rate, the time period, and the starting and ending amounts of money.
We need at least 10 more requests to produce the answer.
0 / 10 have requested this problem solution
The more requests, the faster the answer.
Calculator Mastery Problem: Time Value of Money Time value of money Due to both interest earnings and the fact that money put to good use should generate additional funds above and beyond the original investment, money tomorrow will be worth less than money today. Simple interest Bolden Co., a company that you regularly do business with, gives you a $19,000 note. The note is due in three years and pays simple interest of 9% annually. How much will Bolden pay...
Determine the amount of money that must be invested now (time 0) at 7% nominal interest, compounded monthly, to provide an annuity of $5,000 per year for 12 years, starting eight years from now. The interest rate remains constant over this entire period of time. The amount of money that must be invested now is $
Use time value of money techniques to answer the following questions. Round all interest rate calculations to four decimal places. Round all dollar amounts to the nearest whole dollar. (1) TIME VALUE OF MONEY PROBLEMS Griggsville Company needs $3,000,000 for expansion of its manufacturing plant at December 31, 20X9. The company is able to earn a 5% annual return on its investments, compounded monthly. If the company begins investing in an account on January 1, 20X5 for this expansion, how...
Determine the amount of money that must be invested now (time 0) at 6% nominal interest, compounded monthly, to provide an annuity of $10,000 per year for 10 years, starting eight years from now. The interest rate remains constant over this entire period of time.
Calculate the value of x. Interest Amount Principal / Present Value Interest Rate (per year) Time $2009 7.34% 12 months х Answer: Calculate the value of x. Maturity / Future Value Principal / Present Value Interest Rate (per year) Time $3308 10.13% 121 days Answer: Five months ago, Sarah borrowed $1100 from Joe. When she borrowed the money, they agreed she would pay 5% p.a. in simple interest. Sarah pays Joe back today. What is the principal amount? Select one:...
4. (a) Suppose Fannie Rich wants to put her money in the bank so that she could get $5,000 in 5 years; if the bank is willing to pay annual interest of 2% for that amount of money, what is the value of Fannie’s money today? (b) Using the Rule of 72 and the rate of 2%, Fannie could probably have doubled her money in how many years? 5. (a) What is the difference between simple and compound interests rates?...
Amy Parker, a 22-year-old and newly hired marine biologist, is quick to admit that she does not plan to keep close tabs on how her 401(k) retirement plan will grow with time. This sort of thing does not really interest her. Amy's contribution, plus that of her employer, amounts to $2,300 per year starting at age 23. Amy expects this amount to increase by 4% each year until she retires at the age of 62 (there will be 40 EOY...
Time Value of Money In solving these problems please use Excel formulas of the time value of money valuation including : Present Value / PV, Future Value / FV, interest Rate / Rate, Number of periods / NPER First National Bank TIME VALUE OF MONEY ANALYSIS You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions: 1. Draw time...
1. If the nominal interest rate of is 2% per quarter, what is the nominal rate per year ? 2. $100 of interest is paid each month on an investment of $10000, if the interest is compounded monthly at the end of 2 years, what is the accumulation at the end of two years ? 3. An individual wishes to deposit an amount of money now to have an accumulation of $500 at the end of five years. If the...
Assignment 05 - Time Value of Money 1. Simple versus compound interest А. Аа Financial contracts involving investments, mortgages, loans, and so on are based on either a fixed or a variable interest rate. Assume that fixed interest rates are used throughout this question. Heather plans to loan $900 to her friend, who will pay a simple interest rate of 8.2% every year for the loan. If no payments are made and no further borrowing occurs between them for five...