B.Finance module 2

Both you and your older brother would like to have $25,500 in 10 in years. Because of your success in this class, you feel that you are a more savvy investor than your brother and will be able to earn an annual return of 11.5 percent compared to your brother's 10.4 percent. How much less than your brother will you have to deposit today?

10 N 11.5% I/Y PV= 8,586.01 0 PMT -25,500 FV 10 N 10.4% I/Y PV= 9,480,90 0 PMT -25,500 FV

The winner of the first annual Tom Morris Golf Invitational won $100 in the competition which was held in 1898. In 2015, the winner received $1,450,000. If the winner's purse continues to increase at the same interest rate, how much will the winner receive in 2049?

117 N I/Y= 8.53% -100 PV 0 PMT 1,450,000 FV 34 N 8.53% -1,450,000 PV 0 PMT FV= 23,477,639.53

You are going to deposit $19,500 today. You will earn an annual rate of 3.5 percent for 12 years, and then earn an annual rate of 2.9 percent for 15 years. How much will you have in your account in 27 years?

12 N 3.5 I/Y -19,500 PV 0 PMT FV= 29,465.84 15 N 2.9 I/Y -29,465.84 0 PMT FV= 45,242.80

The Nashville Geetars, a professional foosball team, has just signed its star player Harold "The Wrist" Thornton to a new contract. One of the terms requires the team to make a lump sum payment of $13.59 million to the The Wrist exactly 12 years from today. The team plans to make equal annual deposits into an account that will earn 5.47 percent in order to fund the payment. How much must the team deposit each year?

12 N 5.47 I/Y 0 PV PMT= 830,834.92 -13,590,000 FV

Your crazy uncle left you a trust that will pay you $22,000 per year for the next 13 years with the first payment received one year from today. If the appropriate interest rate is 5.5 percent, what is the value of the payments today?

13 N 5.5% I/Y PV= 200,575.73 -22,000 PMT 0 FV

You will receive 30 annual payments of $43,500. The first payment will be received 8 years from today and the interest rate is 7.2 percent. What is the value of the payments today?

30 N 7.2 I/Y PV= 529,123.15 -43,500 PMT 0 FV 7 N 7.2 I/Y PV= 325,231.99 0 PMT -529,123.15 FV

You want to buy a house and will need to borrow $275,000. The interest rate on your loan is 6.13 percent compounded monthly and the loan is for 30 years. What are your monthly mortgage payments?

30 x 12 N 6.13%/12 I/Y -275,000 PV PMT= 1,671.82 0 FV

Your parents are giving you $260 a month for 4 years while you are in college. At an interest rate of .59 percent per month, what are these payments worth to you when you first start college?

4 x 12 N .59% I/Y PV= 10,840.84 -260 PMT 0 FV

Your grandparents put $10,200 into an account so that you would have spending money in college. You put the money into an account that will earn an APR of 4.19 percent compounded. If you expect that you will be in college for 4 years, how much can you withdraw each month?

4 x 12 N 4.19%/12 I/Y -10,200 PV PMT= 231.17 0 FV

Retirement Investment Advisors, Inc., has just offered you an annual interest rate of 4.7 percent until you retire in 40 years. You believe that interest rates will increase over the next year and you would be offered 5.3 percent per year one year from today. If you plan to deposit $14,500 into the account either this year or next year, how much more will you have when you retire if you wait one year to make your deposit?

40 N 4.7% I/Y -14500 PV CPT FV= 91,040.63 39 N 5.3% I/Y -14,500 PV CPT FV= 108,661.20 difference= 17,620.57

You have just started a new job and plan to save $4,900 per year for 42 years until you retire. You will make your first deposit in one year. How much will you have when you retire if you earn an annual interest rate of 9.96 percent?

42 N 9.96% I/Y 0 PV -4,900 PMT FV= 2,604,158.77

You need to have $33,250 in 11 years. You can earn an annual interest rate of 4 percent for the first 6 years, and 4.6 percent for the next 5 years. How much do you have to deposit today?

5 N 4.6% I./Y PV= 26,554.20 0 PMT -33,250 FV 6 N 4% I/Y PV= 20,986.17 0 PMT -26,554.20 FV

Fancy Cat Products has a project that will cost $247,500 today and will generate monthly cash flows of $5,435 for the next 60 months. What is the rate of return of this project when expressed as an APR?

60 N I/Y= .95% -247,500 PV 5,435 PMT 0 FV

You plan to save $6,600 per year for the next 9 years. After the last deposit, you will keep the money in the account for 6 more years. The account will earn an interest rate of 6.9 percent. How much will there be in the account 15 years from today?

9 N 6.9% I/Y 0 PV -6,600 PMT FV= 78,726.83 6 N 6.9% I/Y -78,726.83 0 PMT FV= 117,486.78

You are leasing a $45,500 car. The lease agreement is a 5 year annuity due contract with a 3% APR, what is the monthly payment?

Adjust variables to monthly frequency. This is an annuity due. $815.53

Assuming an interest rate of 6.8 percent, what is the value of the following cash flows four years from today? year 1. 3,350 2. 4,320 3. 6,235 4. 8,395

FV = $3,350(1.068)3 + $4,320(1.068)2 + $6,235(1.068) + $8,395 = $24,062.40

One year ago, the Jenkins Family Fun Center deposited $3,500 into an investment account for the purpose of buying new equipment four years from today. Today, they are adding another $5,300 to this account. They plan on making a final deposit of $7,500 to the account next year. How much will be available when they are ready to buy the equipment, assuming they earn a rate of return of 7 percent?

FV = $3,500 (1 + 0.07)5 + $5,300 (1 + 0.07)4 + $7,500 (1 + 0.07)3 = $21,043.97

You are buying an annuity that will pay $1,500 a month for 100 months starting at the end of this month. If you can earn 8 percent, compounded monthly, what is this annuity worth today?

Find present value $109,225.29

You have $10,500 and will invest the money at an interest rate of .32 percent per month until the account is worth $16,600. How many years do you have to wait until you reach your target account value?

N = 143.36= 11.95 YRS .32% I/Y 10,500 PV 0 PMY -16600

You expect to receive a payout from a trust fund in 3 years. The payout will be for $11,000. You plan to invest the money at an annual rate of 6.5 percent until the account is worth $19,000. How many years do you have to wait from today?

N solve for 8.68 6.5% I/Y 11,000 PV -19000 FV 11.68 years

George Jefferson established a trust fund that will provide $206,500 per year in scholarships. The trust fund earns an annual return of 3.3 percent. How much money did Mr. Jefferson contribute to the fund assuming that only income is distributed?

PV = $206,500/.033 = $6,257,575.76

You just paid $460,000 for a policy that will pay you and your heirs $18,800 per year forever with the first payment in one year. What rate of return are you earning on this policy?

R = $18,800/$460,000 = .0409, or 4.09%

You have been investing $10 a week for the past 15 years. Today, your investment account is worth $60,762.53. Interest is compounded weekly. What is the annual rate of return?

There are 52 weeks in a year. Since payments are weekly, all variables have to be input as weekly variables. The answer is expressed as an annual rate. 21.92%

You made an investment of $11,000 into an account that paid you an annual interest rate of 3.4 percent for the first 8 years and 7.8 percent for the next 12 years. What was your annual rate of return over the entire 20 years?

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You Save Bank has a unique account. If you deposit $6,000 today, the bank will pay you an annual interest rate of 3 percent for 3 years, 3.6 percent for 2 years, and 4.3 percent for 6 years. How much will you have in your account in 11 years?

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