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Time Value of Money Student’s Name Institutional Affiliation Time Value of Money Chapter 4 Solution 1 Compounding refers to finding the future value of a given present value. The interest is earned on principle amount as well as the interim interest payments. On the other hand discounting is finding the present value of an expected cash flow or future value. Solution 2 Future value increases when the interest rate is increased while the present value decreases with an increase in the interest rate. Solution 3 TMCC may be willing to receive a small amount of $24 099 in exchange for a promise to ^9] / .06} = $29 247.28 Investment Y at 6% $6 100{[1 – (1/1.06) ^5] / .06} = $25 695.42 Investment X at 22% $4 300{[1 – (1/1.22) ^9] / .22} = $16 281.03 Investment Y at 22% $6 100{[1 – (1/1.22) ^5] / .22} = $17 468.20 Investment X has higher present value at an interest rate of 6% while investment Y has higher present value at an interest rate of 22% Solution 7 Future value at 8% $910(1.08) ^3+1140(1.08) ^2+1360(1.08) +2100=$6 044.83 Future value at 11% $910(1.11) ^3+1140(1.11) ^2+1360(1.11) +2100=$6 258.73 Future value at 24% $910(1.24) ^3+1140(1.24) ^2+1360(1.24) +2100=$7 274.29 References [...]
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Subject Area: Finance
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