Time Value of Money

Instructions

P6. Determine the present values if $15,000 is to be received at the end of eight years and the discount rate is 9 percent. How would your answer change if you had to wait six years to receive the $15,000?P9. Assume you are planning to invest $5,000 each for six years and will earn 10 percent per year. Determine the future value of this annuity if your first $5,000 is invested at the end of the first year.910. Determine the present value now of an investment of $3,000 made one year from now an additional $3,000 made two years from now if the annual discount rate is 4 percent.911. What is the present value of a loan that calls for the payment of $500 per six years if the discount rate is 10 percent and the first payment will be made one year from now? How would your answer change if the $500 per year occurred for ten years?912. Determine the annual payment on a $500,000, 12 percent business loan from a commercial bank that is to be amortized over a five-year period.P13. Determine the annual payment on a $15,000 loan that is to be amortized over a four-year period and carries a 10 prevent interest rate. Also prepare a loan amortization schedule for this loan.915. Assume a bank loan requires an interest payment of $85 per year and a principle payment of $1,000 at the end of the loans eight-year life.    a. At what amount could this loan be sold for to another bank if loans of similar quality carried an 8.5 percent interest rate? That is what would be the present value of this loan?    b. Now, if interest rates on other similar-quality loans are 10 percent, what would be the present value of this loan.    c. What would be the present value of the loan if the interest rate is 8 percent on similar-quality loans?

Answer

TIME VALUE OF MONEY CONCEPTSP6.a.Present value = $15,000 (1 + 0.09)^-8$7,527.99b.Present value = $15,000 (1 + 0.09)^-6$8,944.0010%P9.PeriodAmount depositedNumber of yearsFuture value interestFuture value ataccompaniedfactorend of year1end of the year5,00051.61058,052.5025,00041.46417,320.5035,00031.3316,65545,00021.216,05055,00011.15,50065,000015,000Total38,578Future value of the annuity is $38,578P10.Present value = $3,000 (1 + 0.04)^-1 + $3,000 (1 + 0.04)^-22,884.62 + 2,773.67$5,658.29P11.PeriodAmountDiscount factorPresent value15000.9091454.5525000.8264413.235000.7513375.6545000.683341.555000.6209310.4565000.5645282.25total2,177.60for the six years75000.5132256.685000.4665233.2595000.4241212.05105000.3855192.75total3,072.25for ten yearsTherefore, present values will be #2,177.60 and $3,...
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