Problem 9-25 Problem 9-29 Problem 9-30
Spreadsheet Templates by Block, Hirt and Danielsen
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Spreadsheet Templates
Foundations of Financial Management
MAIN MENU – CHAPTER 9
The Time Value of Money
Problem 9-25
Objective: Compounding Quarterly
Student Name:
Course Name:
Student ID:
Course Number:
Cousin Bertha invested $100,000 10 years ago at 12 percent, compounded quarterly. How much has she
accumulated?
Foundations of Financial Management
Block, Hirt and Danielsen
Problem 9-25
Instructions
Using the MS Excel FV function, calculate the accumulated value.
Assumptions
Amount invested $100,000
Years 10
Annual interest rate 12%
Accumulated value $326,204
Solution
Problem 9-29
Objective: Alternative present values
Student Name:
Course Name:
Student ID:
Course Number:
Your grandfather has offered you a choice of one of the three following alternatives: $5,000 now; $1,000
a year for eight years; or $12,000 at the end of eight years. Assuming you could earn 11 percent annually,
which alternative should you choose? If you could earn 12 percent annually, would you still choose the
same alternative?
Block, Hirt and Danielsen
Foundations of Financial Management
Problem 9-29
Instructions
Use the MS Excel PV function to complete the table below
Assumptions
Amount now $5,000
Annuity (8 years) $1,000
Amount in 8 years $12,000
Present values 11% 12%
Annuity (8 years) $5,146.12 $4,967.64
Amount received in 8 years $5,207.12 $4,846.60
Select $12,000 to be received in eight years at 11% annually.
If you could earn 12 percent annually, would you still choose the same alternative?
No. Select $5,000 now. As the interest rate (discount rate) increases the present value declines.
Solution
Problem 9-30
Objective: Payments required
Student Name:
Course Name:
Student ID:
Course Number:
You need $23,956 at the end of nine years, and your only investment outlet is a 7 percent long-term certificate
of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning
of the first year.
a. What single payment could be made at the beginning of the first year to achieve this objective?
b. What amount could you pay at the end of each year annually for nine years to achieve this same objective?
Foundations of Financial Management
Block, Hirt and Danielsen
Problem 9-30
Instructions
Use the MS Excel PV function in part a and enter a formula in part b to solve the requirements of this problem.
Information
Future value needed $23,956
Years 9
Annual investment yield 7%
a. What single payment could be made at the beginning of the first year to achieve this objective?
Single payment (present value) $13,030.48
b. What amount could you pay at the end of each year annually for nine years to achieve this same objective?
Payments at end of each year (annuity) $2,000
Solution