05 Case model 12/9/2018
PART B
Interest rate 4%
0 1 2 3
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PART C
PV $100.00
PART D
Interest rate 10%
(2) What’s the present value of $100 to be received in 3 years if the interest rate is 4%, annual
compounding?
Chapter 5. Time Value of Money
This spreadsheet model is designed to be used in conjunction with the chapter’s integrated
case and the related PowerPoint slide presentation.
9/12/22 5:13 PM
(1) What’s the future value of $100 after 3 years if it earns 4%, annual compounding?
What annual interest rate would cause $100 to grow to $119.10 in 3 years?
If a company’s sales are growing at a rate of 10% annually, how long will it take sales to double?
Interest rate 4%
PART F
Years 3
Years 3
Annuity payment $100
Interest rate 4%
Years 3
Annuity payment $100
Interest rate 4%
Years 3
Annuity payment $100
Interest rate 4%
PART G
Years 5
Annuity payment $100
Interest rate 4%
Annuity payment $100
Interest rate 4%
(3) What would the future and present values be if it was an annuity due?
A 5-year $100 ordinary annuity has an annual interest rate of 4%.
(1) What is its present value?
(2) What would the present value be if it was a 10-year annuity?
(1) What is the future value of a 3-year, $100 ordinary annuity if the annual interest rate is 4%?
(2) What is its present value?
Annuity payment $100
Interest rate 4%
Years 25
Annuity payment $100
Interest rate 4%
PART H
Savings per year $1,825
Interest rate 8%
Years until retirement 45
Savings per year $1,825
Interest rate 8%
Years until retirement 25
Interest rate 8%
(3) What would the present value be if it was a 25-year annuity?
(4) What would the present value be if this was a perpetuity?
A 20-year-old student wants to save $5 a day for her retirement. Every day she places $5 in a
drawer. At the end of each year, she invests the accumulated savings ($1,825) in a brokerage
account with an expected annual return of 8%. (1) If she
keeps saving in this manner, how much will she have accumulated at age 65?
(2) If a 40-year-old investor began saving in this manner, how much would he have at age 65?
(3) How much would the 40-year-old investor have to save each year to accumulate the same
amount at 65 as the 20-year-old investor?
Annuity payment $100
Interest rate 4%
PART I
0 1 2 3 4
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PART J
Nominal rate
4%
Years 3
PART L
0 1 2 3 4 5 6
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$100 $100 $100
Nominal rate
4%
What is the present value of the following uneven cash flow stream? The annual interest rate is
4%.
(3) What is the EAR corresponding to a nominal rate of 4% compounded semiannually?
Compounded quarterly? Compounded daily?
(4) What is the future value of $100 after 3 years under 4% semiannual compounding?
Quarterly compounding?
(1) What is the value at the end of Year 3 of the following cash flow stream if interest is 4%
compounded semiannually? (Hint: You can use the EAR and treat the cash flows as an ordinary
annuity or use the periodic rate and compound the cash flows individually.)
PART M
N 3
I/YR 4%
The following is an amortization table of this $1,000 loan.
Year
Loan
amount Payment
Paid toward
Interest
Paid toward
Principal
Balance
1$1,000.00 $360.35 $40.00 $320.35 $679.65
(1) Construct an amortization schedule for a $1,000, 4% annual interest loan with 3 equal
installments. (2)
What is the annual interest expense for the borrower and the annual interest income for the
lender during Year 2?