Assignment #1

  1. Explain the Time Value of Money.
  • Assume simple interest for the following:

A – $2000 deposited in an account paying 7.5% annual interest rate for 5 years.

Find the Future value of the funds.

B – $10,000 deposited in an account paying 8% annual interest rate for 3 years and 10% annual interest rate for an additional 3 years. What is the value of the funds at the end of the investment.

D – $2,500 earning 5% annually has grown to $3,500. Find how long did the funds take to grow (find t).

  • Assume compounding interest for the following and use excel TVM functions.

A – $10,000 deposited in an account earning 5% interest for a period of 4 years.

  1. Find the future value of the funds using Annual Compounding.
  2. Find the future value of the funds using Quarterly Compounding.
  3. Find the future value of the funds using Monthly Compounding.
  4. Find the future value of the funds using Daily Compounding.

B – $5,000 grows to $5,500 at the end of two years. Interest compounds annually.

Find the annual interest rate.

C – $7,000 earns 8% per year compounded annually and grows to $10,860 at the end of the investment period. Find time (NPER).

D – An investment has grown to $15,000 over 9 years. The annual interest rate earned was 8% compounded annually.

Find the PV (initial value invested).

**Round all answers to two decimals.

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