Part 1 The following situations test your comprehension of time value of money concepts. You will need your financial calculator or Excel. For each problem write the variable from the problem next

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Part 1

The following situations test your comprehension of time value of money concepts. You will need your financial calculator or Excel. For each problem write the variable from the problem next to the variable in your calculator menu. Put a question mark next to the variable we are solving for, and put the answer to that variable on the “Answer” line.

Remember that there has to be a negative number in your calculations for the formulas to work. If you get an error message on your calculator go back and make one of the dollar variables negative……usually the PV factor .

1.      Paulo has won the lottery. He is offered a series of payments of $15,000 per year for 10 years. What is the present value of these payments at an interest/discount rate of 6%?

PV =

FV =

I =

N =

Pmt =

Answer:

2.      Keesha’s grandmother died and left a trust for her that pays out $20,000 per year for 10 years. If Keesha invests the payments at 8%, what will her future value be?

PV =

FV =

I =

N =

Pmt =

Answer:

3.      Bob has been in an accident and the other party’s insurance company has offered either a one-time payout of $15,000, or a series of payments of $1,100 per year for 15 years.  (al) If Bob knows that the current investment rate of interest is 6%, what is the present value of the series of payments? (b) Which should Bob take based on present values?

PV =

FV =

I =

N =

Pmt =

Answer: (a)                          (b)

4.      You want to buy a new car that costs $25,000, and you put 20% down payment on the purchase and finance the remainder. How much would your monthly payments be if you borrow the money for 5 years from a credit union at 4% annually?

Remember: You have to make the term of the loan and the interest rate monthly values to align with the monthly payment you want to compute)

PV =

FV =

I =

N =

Pmt =

Answer:

5.      You want to buy a house that costs $200,000, you agree with the bank to put 25% down and they will finance the remainder. Because you have a good credit score you have been offered a 20-year loan at 3.6%. What is your monthly payment of principal and interest?

PV =

FV =

I =

N =

Pmt =

Answer:

Part 2

The following situations test your comprehension of time value of money concepts. You will need your financial calculator or Excel. For each problem write the variable from the problem next to the variable in your calculator menu. Put a question mark next to the variable we are solving for, and put the answer to that variable on the “Answer” line.

Remember that there has to be a negative number in your calculations for the formulas to work. If you get an error message on your calculator go back and make one of the dollar variables negative……usually the PV factor .

1.      (2 Pts. Each)  Keenan has won the lottery for $10,000,000. He is offered a cash payment now of $7,000,000, or 10 annual payments of $1,000,000.

·         What is the interest rate that makes these two amounts equal?

a.      PV =

b.      FV =

c.       I =

d.      N =

e.      Pmt =

·         If you can invest at 6% how much would you have after 10 years if you invested the $7,000,000?

o   PV =

o   FV =

o   I =

o   N =

o   Pmt =

2.      (1 Pt. Each)  You want a new car that costs $30,000. Compute the following:

·         What would the monthly payment be if you borrowed $30,000 from a credit union at 5% for 5 years?

o   PV =

o   FV =

o   I =

o   N =

o   Pmt =

·         What would be the total of monthly payments (the amount you would actually pay for the car)

o

·         How much interest would you pay if you did this?

o

·         How much would you have to save each month if you decided to save for 5 years and pay cash for the car, and you could earn 6% on your savings?

o   PV =

o   FV =

o   I =

o   N =

o   Pmt =

·         What would be the total of monthly savings (the amount you would actually pay for the car if you saved)?

o

3.      (1 Pt.)   You have a trust that when mature will be $100,000 that you will receive when you are 40 years old. You are 25 years old now. If the trust is growing at 6% per year what is the value of the trust now? ____________

a.      PV =

b.      FV =

c.       I =

d.      N =

e.      Pmt =

4.      (1 Pt. Each)   You want to purchase a house that costs $200,000. You have $60,000 to put down on it. Because you have good credit score you have been offered a loan of 15 years at 3% or 30 years at 3.75%.

·         How much is your loan?

·         What is your monthly principal and interest payment for the 15-year loan?

o   PV =

o   FV =

o   I =

o   N =

o   Pmt =

·         _What is your monthly principal and interest payment for the 30-year loan?

o   PV =

o   FV =

o   I =

o   N =

o   Pmt =

·         What is the total of the financed payments (the amount you actually pay for the house) with the 15-year loan?

o

·         What is the total of the financed payments (the amount you actually pay for the house) with the 30-year loan?

o

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