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# Critical Thinking: The Time Value of Money (Example)

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Module 5 Critical Thinking Assignment The Time Value of Money Complete the following problems. You will likely use a spreadsheet for this assignment but you may choose to type up your answers in a Word document. In either case be sure to show your work. 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 Problem 5-1: Compound Interest To what amount will the following SAR investments accumulate? Solution A)   Investment 4 500 Years 5 Percent 7% FV =  6311.48 FV = PV (1+r)n = 4500 (1+0.07)5 = 6311.48 B) Investment 9 200 Years 3 Percent 9% FV =  11914.266 FV = PV (1+r)n = 9200 (1+0.09)3 = 11914.266 C) Investment 17 050 Years 8 Percent 11%       PV 5 500 Years 4 Percent 3% FV =  6190.30 FV = PV (1+r)n = 5500 (1+0.03)4 = 6190.30 B) Semiannual 4  6444.13 Bimonthly 8  7557.61 FV = PV (1+r)n = 5500 (1+0.02)8 = 6444.13 FV = PV (1+r)n = PV (1+0.0133)24 = 7557.61 C) Rate 9% Annual  7763.70 Semiannual  7821.55 Bimonthly 7 862.27 FV = PV (1+r)n = 5500 (1+0.09)4 = 7763.70 FV = PV (1+r)n = 5500 (1+0.045)8 = 7821.55 FV = PV (1+r)n = 5500 (1+0.015)24 = 7862.27 D) Years 14 Annual  8319.24 FV = PV (1+r)n = 5500 (1+0.03)24 = 831924 E) It is difficult to compare rates of different compounding periods. However an increase in rate increases the future value of a given sum. Also an increase in holding period increases the future value of the amount [...]

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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

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