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The Time Value of Money Name Instructor Course Date The Time Value of Money Problem 5-1: Compound Interest To what amount will the following SAR investments accumulate? Solution Pn =Po (1+r)n Where Pn is the future value of Po Po is the original amount invested r is the rate of interest n is the number of compounding periods (years or months). A) Pn= Po (1+r) n Pn= 7000 (1+ 9/100)8 Pn = 7000 (1+0.09)8 Pn= 7000 (1.09)8 Pn = 7000 (1.9926) Pn = 13948.2 B)Pn= Po(1+r)n Pn= 11 000 (1+ 7/100)10 Pn= 11 000 (1.07)10 Pn=11 000 (1.9672) Pn=21639.20 C)Pn= Po (1+r)n Pn= 20 000 (1+8/100)6 Pn= 20 000 (1.08)6 Pn =20 000(1.5869) Pn = 31 738 D) Pn= Po (1+r)n Pn= 750 (1+ 12/100)12 Pn = 750 (1.12)12 Pn= 750 (3.8960) Pn= 2 922 Problem 5-2: Present Value What is the present value of the following future amounts? With respect to the effect of changes in the stated interest rate and holding periods on future sums in parts c. and d. what conclusions do you draw when you compare these figures with the answers found in parts a. and b.? Investments returns are mainly determined by the period within which they will be carried which in this case when its varied from 5 years in part (a) to 12 years in part (d) it affects the overall returns. Similarly the interest rates are crucial in determining returns on any investment. The higher the interest rates the more future returns will be as clearly shown by the difference in part (c) and part (a). It is also clear compounding rates within an year has little effect on the overall returns with the figures in part (b) (i) having little impact on the overall returns compared to part (b)(ii). [...]
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Complete the following problems: Problem 5-1: Compound Interest Problem 5-2: Present Value Problem 5-3: Future Value Problem 5-4: Present-Value Comparison Problem 5-5: Compound Annuity Problem 5-6: Compound Interest with Nonannual Periods You can access the problem details by clicking on The Time Value of Money link below. Complete the problems in an Excel spreadsheet or Word document. Be sure to show your work.
