Professional Documents
Culture Documents
Dr. Sharp @2 4
$uestion: %hy are &'(i) and &'(i)t called interest factors* +nswer: '. Start with simple arithmetic problem on interest: Ho6 mu0h 6ill 7# , pla0e) in a 8an9 a00ount pa:ing 5; per :ear 8e 6orth 0ompoun)e) annuall:< +nswer: 3rin0ipal - /nterest 7# , - 7# , = . 5 > 7# ,5 ,. -actor out the .'/0///. # , = ,#. 5. > 7# ,5 1. This leaves &'./2) as the factor. #. Fin) the ?alue o( 7# , earning 5; interest per :ear a(ter two :ears. Start 6ith the amount a(ter one :ear an) multipl: 8: the (a0tor (or ea0h :ear. 3&mount a(ter one :ear4 = ,#. 5. > 37# , = ,#. 5.4 = ,#. 5. > 7# , = ,#. 5.2 > 7##, 25. So &'(i)t 5 .
Alass Botes
+. -uture !alue Fin) the ?alue o( 7# , in # :ears. The in?estment earns 5; per :ear.
F+ > 7# , 6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i. F+ > 7# , 6,#. 5.6,#. 5.6,#. 5.6,#. 5.6,#. 5.6,#. 5.6,#. 5.6,#. 5.6,#. 5.6,#. 5. F+ > 7# , = ,#. 5.# > 7# , = #.!2$$" > 7#!,2$" Fin) the ?alue o( 7# , in # :ears. The in?estment earns $; (or (our :ears an) then earns 4; (or the remaining si= :ears. F+ > 7# , 6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i. F+ > 7# , 6,#. $.6,#. $.6,#. $.6,#. $.6,#. 4.6,#. 4.6,#. 4.6,#. 4.6,#. 4.6,#. 4. F+ > 7# , = ,#. $.4 = ,#. 4.! F+ > 7#*,2#4.53
B.
7resent !alueC
Same i)ea, 8ut 8egin at the en). %earrange the Future ?alue eDuation to loo9 li9e thisC
3+ > F+E 1,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.6,#-i.2 3+ > F+ E ,#-i.t 122
8xample: 9ow much do I need to invest at :; per year0 in order to have .'/0/// in<<. a. =ne year: 7! 5'/0/// > &'./:) 5 .?0,2?.,@ b. Two years: 7! 5 .'/0/// > &'./:) > &'./:) =A .'/0/// > &'./:), 5 .:02B1 c. Ten years 7! 5 .'/0/// > &'./:)'/ 5 .'/0/// > ,.'2:? 5 .C0@1, C. Aate of Aeturn ST+AT %IT9 S+"8 A8D+TI=E9SI7: F+ > 3+ = ,#-i.t Sol?e (or i.
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F. -indin the -uture !alue Fin) the ?alue o( 7# , to)a: at the en) o( # perio)s at 5; per perio). '. Scientific Calculator: Gse 1:=2 : > ,#-i. > #. 5 an) = >t> # . #. Enter #. 5. 2. 3ress 3yx4. 1. Enter the e=ponent. 4. Enter 1>2. 5. Multipl: result 8: 7# , .
,. Spreadsheet:
E=T8: The future value will be ne ative0 indicate an opposite direction of cash flow. #. Set the 0al0ulator (reDuen0: to on0e per perio). 2. Enter negati?e num8ers using the 1-4F2 9e:, not the su8tra0tion 9e:. 3. Be sure the 0al0ulator is set in the EBD mo)e. 8. -undamental Idea.
$uestion: 'hat is the ?alue o( an: (inan0ial asset< +nswer: The present ?alue o( its e=pe0te) 0ash (lo6s.
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#. Enter #. $. 2. 3ress 3yx4 1. Enter the e=ponent as a negati?e num8er 4. Enter 1>2. 5. Multipl: result 8: 7# , .
8. Sprea)sheet
The present value will be ne ative0 to indicate the opposite direction of cash flow.
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,. Spreadsheet
1. -inancial Calculator. &Gour financial calculator may differ. Consult your manual.)
n 1B2 # i 1/4J%2 < 3+ F# , 3MT F+ #*,"#
&ns6er i > !; $uestion: Today your stock is worth .2/0///. Gou invested .20/// in the stock ': years a o. %hat avera e annual rate of return 3i4 did you earn on your investment*
+nswer: '1.@C@;.
$uestion: The total percenta e return was C20///>2///5?//;. %hy doesnKt the avera e rate of return equal 2/;0 since ?//;>': 5 2/;*
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9. -HTHA8 !+DH8 %98E A+T8S =- IET8A8ST C9+EI8. -! 5 7! x &'(i') x 8xample: Jou in?est 7# , . During the (irst :ear the in?estment earne) 2 ; (or the :ear. During the se0on) :ear, :ou earne) onl: 4; (or that :ear. Ho6 mu0h is :our original )eposit 6orth at the en) o( the t6o :ears< -! 5 7! x &'(i') x &'(i,) 5 .'/0/// x &'.,/L) x &'./C) 5 .',0C:/. $uestion: The arithmetri0 a?erage rate o( return is #2;, 6hat is the geometri0 a?erage rate o( return< +nswer: &n a?erage rate o( return is a geometri0 a?erage sin0e it is a rate o( gro6th. The #2; is the arithmeti0 a?erage. The geometri0 a?erage rate o( return on the in?estment 6as ##.*;.
i K%
Important: <hough 2 ; an) 4; a?erage to #2;, the 7# , #2;. 17# , = ,#.#2.2> #2,544 E=T 7#2,4$ 2. I.
C="7=HEFIEI 78AI=FS Gp to this point, 6e ha?e use) :ears as the onl: time perio). &0tuall:, all the pre?ious e=amples 0oul) ha?e 8een Duarters, months, or )a:s. The interest rate and time period must correspond.
8xample: 7roblem '. Fin) the ?alue o( 7# , 7roblem ,. Fin) the ?alue o( 7# ,
earning 5; interest per :ear a(ter t6o :ears. earning 5; interest per Duarter a(ter t6o Duarters.
Both pro8lems ha?e same ans6er 7# , = ,#. 5.2 > 7##, 25. 9owever: /n the (irst pro8lem t re(ers to :ears an) i re(ers to interest rate per :ear. /n the se0on) pro8lem t re(er to Duarters an) i to interest rate per Duarter. -!t 5 7! x &'(i)t. t > num8er o( perio)s i > interest (or the perio).
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+lternatively, -!tm 5 7! x &'(iJm)tm. m> perio)s per :ear, t> num8er o( :ears, i > the interest per :ear 1&3%2. 8xample: 'hat 6ill 7#, 8e 6orth at the en) o( one :ear 6hen the annual interest rate is #2; 1This is the +7A.2 6hen interest is 0ompoun)e)C +nnuallyC t5' i 5',; F+# > 3+ = ,#-i.# > 7#, = ,#.#2.# > 7#,#2 . 4 4 $uarterly: t5C i 5 1; F+4 > 3+ = ,#-i. > 7#, = ,#. 3. > 7#,#25.5#. "onthly: t5', i 5'; F+#2 > 7#, = ,#. #.#2 > 7#, = ,#.#2!$25. > 7#,#2!.$25. Faily: t51@2 i 5 &',;>1@2) 5 /./1,:BB; F+3!5 > 7#, = ,#. 32$**.3!5> 7#,
i 1/4J%2 #2 3 # . 32$** 3+ #, #, #, #,
n 1B2 # 4 #2 3!5
9ow about compoundin at every instant* 8. C=ETIEH=HS C="7=HEFIEI: 3Hsed in Mlack Scholes option pricin model.4 tLm lim # - MMiMM 5 ei t m m 8xample: 'hat is 7#, 6orth in one :ear i( 0ompoun)e) at #2; 0ontinuousl:.
F+ > 7#, = e.#2 > 7#, = #.#2*4"* > 7#,#2*.5 This is 7. 3 more than )ail: 0ompoun)ing. Try this on your calculator. -ind the ex button. e.', 5 '.',BC? 7resent !alue Interest -actor 5 3e Fi t2 7roblem: 'hat is the present ?alue o( 7# , to 8e re0ei?e) 3 :ears (rom to)a: 0ompoun)e) 0ontinuousl: at # ;<3+ > 7# , = e F.# = 3 > 7# , = .*4 $2>7*,4 $ x Try this on your calculator. -ind the e button. e-/.1 5 /.BC/:,
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2. a. 'hat rate o( interest 1&3%2 is the 8an9 0harging :ou i( :ou 8orro6 7**,!5 an) must repa: 7$ , at the en) o( 2 Duarters, i( interest is 0ompoun)e) Duarterl:<
&ns6erC !. ; &3%
8. 'hat rate o( interest 1&3%2 is the 8an9 0harging :ou i( :ou 8orro6 74", 75 , at the en) o( 3 months, i( interest is 0ompoun)e) monthl:<
3. Ho6 mu0h must :ou )eposit to)a: in a 8an9 a00ount pa:ing interest 0ompoun)e) monthl:C at the en) o( # months, i( the 8an9 pa:s 5. ; &3% < &ns6erC 7","5" 8. i( :ou 6ish to ha?eC N!, at the en) o( ! months, i( the 8an9 pa:s ". ; &3% < &ns6erC N5,*3* 0. i( :ou 6ish to ha?eC 7#2, at the en) o( #2 months, i( the 8an9 pa:s !. ; &3% < &ns6erC 7##,3 3 4. /( interest is 0ompoun)e) Duarterl:, ho6 mu0h 6ill :ou ha?e in a 8an9 a00ountC a. i( :ou )eposit to)a: N$, at the en) o( 3 months, i( the 8an9 pa:s 5. ; &3% < &ns6erC N$,# 8. i( :ou )eposit to)a: 7# , at the en) o( ! months, i( the 8an9 pa:s ". ; &3% < &ns6erC 7# ,455 0. i( :ou )eposit to)a: O$ , at the en) o( #2 months, i( the 8an9 pa:s $. ; &3% < &ns6erC O$!,5"5 ). i( :ou )eposit to)a: 75, at the en) o( 24 months, i( the 8an9 pa:s 5. ; &3% < &ns6erC 75,522 a. i( :ou 6ish to ha?eC 7# ,
5. /( interest is 0ompoun)e) monthl:, ho6 mu0h 6ill :ou ha?e in a 8an9 a00ount, a. i( :ou )eposit to)a: N$, 8. i( :ou )eposit to)a: 7# , 0. i( :ou )eposit to)a: O$ , ). i( :ou )eposit to)a: N5, at the en) o( 3 months, i( the 8an9 pa:s 5. ; &3% < &ns6erC N$,# at the en) o( ! months, i( the 8an9 pa:s ". ; &3% < &ns6erC 7# ,45" at the en) o( #2 months, i( the 8an9 pa:s $. ; &3% < &ns6erC O$!,!4 at the en) o( 24 months, i( the 8an9 pa:s 5. ; &3% < &ns6erC N5,525
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"
!. Jou 8orro6e) 7#,5$4 an) must repa: 72, in e=a0tl: 4 :ears (rom to)a:. /nterest is 0ompoun)e) annuall:. a. 'hat is the interest rate 1&3%2 o( the loan< &ns6er !. ; 8. 'hat e((e0ti?e annual rate 1E&%2 are :ou pa:ing< &ns6er !. ; *. Jou no6 ha?e 7$, in a 8an9 a00ount in 6hi0h :ou ma)e one single )eposit 7$, monthl: o( 7#4$."* e=a0tl: 4 :ears ago. /nterest is 0ompoun)e) monthl:. a. 'hat rate o( interest 1&3%2 is the 8an9 pa:ing< &ns6er # . ; 8. 'hat e((e0ti?e annual rate 1E&%2 is the 8an9 pa:ing< &ns6er # .4*; 7ossibly Eew 7roblems. $. Suppose :ou ma9e an in?estment o( 7#, . This (irst :ear the in?estment returns #2;, the se0on) :ear it returns !;, an) the thir) :ear in returns $;. Ho6 mu0h 6oul) this in?estment 8e 6orth, assuming no 6ith)ra6als are ma)e< &ns6erC
# P,#.#2. = ,#. !. = ,#. $. > 7#,2$2
-# ,
=i ># ,
= ,#-i.
. This (irst :ear the in?estment returns 5;, the se0on) :ear it returns i. 'rite an e=pression, using i, that represents the (uture ?alue o( the in?estment at the en) o( t6o :ears.
&ns6erC
F+>#,
= ,#. 5. = ,#-i.
##. &n in?estment is 6orth 75 , to)a:. This (irst :ear the in?estment returns ";, the se0on) :ear it returns i. 'rite an e=pression using i that represents the original ?alue o( the in?estment. &ns6erC 3+>5 , E1,#. ". = ,#-i.2 #2. Suppose :ou ma9e an in?estment o( 7&. This (irst :ear the in?estment returns # ;, the se0on) :ear it returns #!;, an) the thir) :ear in returns 2;. Ho6 mu0h 6oul) this in?estment 8e 6orth, assuming no 6ith)ra6als are ma)e< &ns6erC
&P,#.# . = ,#.#!. = ,#. 2.
##. Suppose :ou ma9e an in?estment o( 7# , . This (irst :ear the in?estment returns #5;, the se0on) :ear it returns 2;, an) the thir) :ear in returns # ;. Ho6 mu0h 6oul) this in?estment 8e 6orth at the en) o( three :ears, assuming no 6ith)ra6als are ma)e<
7#2," 3
#2. %e(er to the a8o?e pro8lem. 'hat is the geometri0 a?erage rate o( return<
$.";
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Review Fundamentals of Valuation Part II Multiple 3erio)sC Gne?en an) E?en ,&nnuities. 3erio)i0 Gne?en Aash Flo6s
'hat is the ?alue o( the (ollo6ing set o( 0ash (lo6s to)a:< The interest rate is $; (or all 0ash (lo6s.
Jear an) Aash Flo6 #C 7 3 2C 7 5 3C 7* 4C 7#
7#,
#
7#,
2
7#,
3
7#,
4
PVIFA =
# 4(1 + i )
j =#
# # 4(1 + i ) PVIFA = . i
t
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##
8xample: %hat is the present value of a C-year annuity0 if the annual interest is 2;0 and the annual payment is .'0///* i 5 2;O 7"T 5 .'0///O t 5CO 7! 5 *
3+ > #, 4,#. 5. - #, 4,#. 5.2 - #, 4,#. 5.3- #, 4,#. 5.4
Don way.
-actor out the sin le sum interest rate factors: 3+ > #, = 1#4,#. 5. - #4,#. 5.2-#4,#. 5.3- #4,#. 5.42 > 3+ > #, = 13+/F& ,4,5;.2 >
Short
Calculate: 3+/F&,4,5;. > #F#4,#-i.t > #F 3+/F4,5; #F .$22* > 3.545"5. i 5; . 5 3+ > #, = 13.54! 2 > 73,54!.
3+/F&,4,5;. > #F#4,#-i.t > #F 3+/F #F .$22* > 3.545"5. i i . 5 5 #, = 13.54! 2 > 73,54!. ,. Hsin a spreadsheet.
3+> 73,54!.
Eote: "ost financial calculators require i 3IJGA4 to be a percenta e. That is enter a 20 not ./2. 9owever0 8xcel requires ./2 or 2;.
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#2
FVIFA = FVIFA =
(1 + i )
j=0 t
t #
(1 + i ) # i
8xample: %hat is the future value of a C-year annuity0 if the annual interest is 2;0 and the annual payment is .'0///* i 5 2;O 7"T 5 .'0///O t 5CO -! 5 * 7#, 7#, 7#, = 1#- ,#. 5. - ,#. 5.2 - ,#. 5.32 > = 1F+/F& ,4,5;.2 > = 14.3# #2 > 74,3# .#
-indin -!I-+ '. Hsin scientific calculator: -IAST -IEF: T98E: F+/F > ,#-i.t > ,#. 5.4 > #.2#55 ,#-i.t F# > F+/FF # i i F+/F4,5;F # #.2#55F# > 4.3# # 5; . 5 . Hse
,. Hsin a Spreadsheet
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#3
-! 5 .C01'/ $uestion: Ho6 mu0h 6oul) :ou nee) to )eposit e?er: month in an a00ount pa:ing !; a :ear to a00umulate 8: 7#, , 8: age !5 8eginning at age 2 < DataC F+ > 7#, , i > !;E#2 > .5; per month n > ,!5F2 . = #2 > 45 = #2 > 54 months. 3MT > < &ns6erC 3MT > 73!2.$5
Fata: i 5 * 7! 5 .@/0///
7"T5.',0?12
t 5 : years
Aelationship: 7! 5 7"T x 7!I-+&t0 i) '. Solution: &Trial and 8rror with Table) 7!I-+&t0 i) 5 7!J7"T5 .@/0///J',0?12 5 C.@1:@
Table ..... 'C; .... : : .. C.@1:? .. :
Therefore: 7!I-+ 5 C.@1:@. SoP i 5 'C; ,. &Trial and 8rror usin a spreadsheet pro ram)
Alass Botes
#4
i 5 'C; F. 8xample of +nnuity with quarterly compoundin : &n in?estment o( 73 per Duarter (or ! :ears at annual interest rate o( $;, 0ompoun)e) Duarterl:, 6ill a00umulate 8: the en) o( :ear ! toC SolutionC F+ > < 3MT > 73, t > 24 i > 2; F+ > 3MT = F+/F& ,t, i.. F+ > 73, = 13 .4222 > 7"#,2!!.
n 1B2 24 i 1/4J%2 2 3+ 3MT F3 F+ < .?'0,@@
Aeview 7roblems with solutions. #. This oneC is a t:pi0al mortgage pro8lem. Jou 8orro6 7$ , to 8e repai) in eDual monthl: installments (or 3 :ears. The &3% is ";. 'hat is the monthl: pa:ment< 3+ > 7$ , i > .*5;, t>3! 3MT > < 7$ , > 3MT = #24.2$2 3MT > 7!43.*
F+
n 1B2 3!
i 1/4J%2 .*5
3+ F$
3MT <
2. Tr: this one. Jou ma9e eDual 74 monthl: pa:ments on a loan. The interest rate eDuals #5; &3%, 0ompoun)e) monthl:. The loan is (or #2 :ears. 'hat is the amount o( the loan< &ns6erC 3+ > 72!,!5#
3. %etire 6ith a millionC Ho6 mu0h 6oul) must :ou )eposit monthl: in an a00ount pa:ing !; a :ear 1&3%2, 0ompoun)e) monthl:, to a00umulate 7#, , 8: age !5 8eginning at age 3 < &ns6erC 3MT > 7* #."
n 1B2 42 i 1/4J%2 .5 3+ 3MT < # F+
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#5
C.
Hsin a financial calculator for annuity calculations: Aal0ulate the (uture ?alue o( 7! . per :ear at *; per :ear (or eight :ears.
FV = 60 (1 + .07 )
j=0
3+ < 3+>72,# !
3MT F5
F+
B. Gou borrow .20/// and repay the loan with ', equal monthly payments of .2//* Calculate the interest rate per month and the +7A.
n1B2 #2
i 1/4J%2 < i > 2."2; per month. &3% > i = #2 &3% > 2."2; = #2 > 35. 4
3+ 5,
3MT F5
F+
:. 7roblem on inflation. Jou 6ill re0ei?e 7# , )ollars 6hen :ou retire, (ort: :ears (rom to)a:. /( in(lation a?erages 3; per :ear (or the ne=t (ort: :ears, ho6 mu0h 6oul) that amount 8e 6orth measure) in to)a:Rs )ollars< ,Bote, this is not a time ?alue o( mone: pro8lem, 8ut it sol?e) 6ith a similar 0al0ulation. Su0h a)Sustments are ne0essar: to o?er0ome Tmone: illusionU2
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#!
Solution:
7#
7#,
2
7#,
3 4
$uestion: Aompare the pa:ments o( the annuit: )ue, a8o?e, 6ith those o( the or)inar: annuit: earlier. 'hat is the )i((eren0e< Ho6 )oes this )i((eren0e a((e0t its ?alue< +nswer: Ea0h pa:ment in an annuit: )ue o00urs one perio) earlier than it 6oul) in or)inar: annuit:. Both present ?alue an) (uture ?alue o( ea0h pa:ment in an annuit: )ue i( ,#-i. times greater than it 6oul) 8e (or an or)inar: annuit:. $uestion: 'hat is the present ?alue o( the a8o?e (ourF:ear annuit: )ue< 7#, = 1# - #4,#-i. - #4,#-i.2 - #4,#-i.32 5 7#, = ,#-i. = 1#4,#-i. - #4,#-i.2 - #4,#-i.3-#4,#-i.42 5 7#, = ,#-i. = 3+/F& i,4 7! interest factor of an annuity due is: &'(i)67!I-+ -! interest factor of an annuity due is: &'(i)6-!I-+
7roblem. %hat is the present value of an annuity due of five .:// annual payments discounted at '/;* :// x &'.'/)x7!I!+'/;02 5 :// x&'.'/)x 1.B?/B? x 5 :// x C.'@?:B 5 .10112.?
Eote: -inancial calculators have a BEGIN and EN mode. The above assumes the EN mode. If the calculator is set in the BEGIN mode0 it calculates an annuity due. 7roblem. %hat is the present value of an annuity of five annual .:// payments discounted at '/;* The first payment is due in one-half year from today. :// x &'.'/)'J, x7!I!+'/;02 5 :// x&'./C::')x 1.B?/B? x 5 :// x 1.?B2:' 5 10':/.B
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#*
2.
'hat is the present ?alue o( a stream o( 72,5 semiannual pa:ments re0ei?e) at the en) o( ea0h perio) (or the ne=t # :ears< The &3% is !;. a. 3*,#"4 8. 3$,3# 0. 35,$# ). 3!,$$5
pa:ments re0ei?e) at the en) o( ea0h :ear (or the ne=t #
3. 'hat is the (uture ?alue in # :ears o( 7#,5 :ears< &ssume an interest rate o( $;. a. 725,2! 8. 723,4* 0. 72#,*3 ). 7#$,3"5 e. 7#5,
4. Jou are gi?en the option o( re0ei?ing 7#, no6 or an annuit: o( 7$5 per month (or #2 months. 'hi0h o( the (ollo6ing is 0orre0t< a. Jou 0annot 0hoose 8et6een the t6o 6ithout 0omputing present ?alues. 8. Jou 0annot 0hoose 8et6een the t6o 6ithout 0omputing (uture ?alues. 0. Jou 6ill al6a:s 0hoose the lump sum pa:ment. ). Jou 6ill al6a:s 0hoose the annuit:. e. The 0hoi0e :ou 6oul) ma9e 6hen 0omparing the (uture ?alue o( ea0h 6oul) 8e the same as the 0hoi0e :ou 6oul) ma9e 6hen 0omparing present ?alues. 5. Jou open a sa?ings a00ount that pa:s 4.5; annuall:. Ho6 mu0h must :ou )eposit ea0h :ear in or)er to ha?e 75 , (i?e :ears (rom no6< a. 7$,32# 8. 7",!2" 0. 7$,!3! ). 7",#4 e. 7!,5!"
!. Jou are 0onsi)ering an in?estment in a !F:ear annuit:. &t the en) o( ea0h :ear (or the ne=t si= :ears :ou 6ill re0ei?e 0ash (lo6s o( 7" . The initial in?estment is 74#4.3 . To the nearest per0ent, 6hat rate o( return are :ou e=pe0ting (rom this in?estment< ,&nnual Aompoun)ing. a. $; 8. "; 0. #2; ). 2#; e. # ;
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#$
*.
Jou are sa?ing up (or a )o6n pa:ment on a house. Jou 6ill )eposit 7! a month (or the ne=t 24 months in a mone: mar9et (un). Ho6 mu0h 6ill :ou ha?e (or :our )o6n pa:ment in 24 months i( the (un) earns # ; &3% 0ompoun)e) monthl:< a. 7#4,4$ 8. 7#5,$* 0. 7#2,"3 ). 7# ,5! e. 7 ",$"
$.
Jour mortgage pa:ment is 7! per month. There is e=a0tl: #$ pa:ments remaining on the mortgage. The interest rate s $. ;, 0ompoun)e) monthl:. The (irst pa:ment is )ue in e=a0tl: one month. 'hat is the 8alan0e o( the loan< 1Balan0e > 3+ o( remaining pa:ments.2 a. 7!2,*$4 8. 7**,2 5 0. 7!3,2 3 ). 7$2,5 2 e. 7$5,# * Jour mortgage pa:ment is 7*55 per month. /t is a 3 F:ear mortgage at ". ; 0ompoun)e) monthl:. Ho6 mu0h )i) :ou 8orro6< a. 7"3,$ 8. 7"*,2 0. 7"2,5 ). 7$5,# e. 7$",4
".
##. The present ?alue interest (a0tor o( an annuit: )ue (or 3 :ears at $; eDualsC a. #4,#. $.3 8. #4,#.24. 0. 1# - #4,#. $. - #4,#. $.22 ). 1#4,#. $. - #4,#. $.2 - #4,#. $.32 e. Bone o( the a8o?e. #2. 'hat is the present ?alue o( 72,5 semiannual pa:ments re0ei?e) at the 8eginning o( ea0h perio) (or the ne=t # :ears< The &3% is !;. a. 3*,#"4.* 8. 3$,3 ".5 0. 35,$ ".5 ). 3!,$$4.$
Alass Botes
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#3. Jour mortgage pa:ment is 7! per month. There are e=a0tl: #$ pa:ments remaining on the mortgage. The interest rate s $. ;, 0ompoun)e) monthl:. The ne=t pa:ment is )ue imme)iatel:. 'hat is the 8alan0e o( the loan< 1HintC This is an annuit: )ue.2 a. 7!3,2 3 8. 7**,2 5 0. 7!2,*$4 ). 7$2,5 2 e. 7$5,# * #4. Jour mortgage pa:ment is 7! per month. There are e=a0tl: #$ pa:ments remaining on the mortgage. The interest rate s $. ;, 0ompoun)e) monthl:. The ne=t pa:ment is )ue in #5 )a:s. 'hat is the 8alan0e o( the loan< 1HintC &ssume 3 )a:s per month.2
a b c d e $62,993 $76,949 $62,576 $82,228 $84,825
#5. The present ?alue interest (a0tor o( an annual or)inar: annuit: (or 3 :ears at $; eDualsC a. #4,#. $.3 8. #4,#.24. 0. 1# - #4,#. $. - #4,#. $.22 ). 1#4,#. $. - #4,#. $.2 - #4,#. $.32 e. Bone o( the a8o?e. #!. The present ?alue interest (a0tor o( a semiannual or)inar: annuit: (or 3 :ears at $; eDualsC a 1#4,#. 4. - #4,#. 4.2 - #4,#. 4.32 8. 1#4,#. $. - #4,#. $.2 - #4,#. $.3 -#4,#. $.4 - #4,#. $.5 - #4,#. $.!2 0. 1#4,#. 4. - #4,#. 4.2 - #4,#. 4.3 - #4,#. 4.4 - #4,#. 4.5 - #4,#. 4.!2 ). 1#4,#. $. - #4,#. $.2 - #4,#. $.32 e. Bone o( the a8o?e. #*. The (uture ?alue interest (a0tor o( an or)inar: annuit: (or 3 :ears at $; eDualsC a. ,#. $.3 8. ,#.24. 0. 1# - ,#. $. - #. $.22 ). 1,#. $. - ,#. $.2 - ,#. $.32 e. Bone o( the a8o?e. #$. Suppose an annuit: 0osts 74 , an) pro)u0es 0ash (lo6s o( 7# , (ollo6ing eight :ears. 'hat is the rate o( return on the annuit:< a. ; 8. # .5; 0. #$.!; ). 25. ; e. 5 . ; #. & 2. & ##. A #2. B 3. A 4. E 5. D !. & *. B #3. & #4. & #5. D #!. A #*. D $. & #$. A o?er ea0h o( the
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Custom Time Value of o!e" fu!ctio!s a#e easil" do!e o! a s$#eads%eet. T%e follo&i!' fu!ctio!s ca! be i!se#ted i!to a s$#eads%eet. (!se#t me!u, )u!ctio!, )i!a!cial. ANNUITIES
The (ollo6ing (un0tions appl: to annuitiesC 3+ F+ F+SAHEDGQE 33MT 3MT %&TE /3MT B3E%
*ote+ a!" fi!a!cial fu!ctio!s #e,ui#e t%e -!al"sis Tool.a/ to be loaded. Tools menu. -dd i!s+ C%ec/ -!al"sis Tool.a/