Finance Problems

1555 Words6 Pages
Finance Problems Present value is the amount of money required today to produce, using prevailing interest rates, a given amount of money in the future. Future value is the amount of money in the future that a certain amount of money today will yield, given prevailing interest rates. Time value of money calculations are useful for retirement planning purposes. If one assumes that a given amount will be available upon retirement, then one can determine the present value of that future amount. Or, if one sets aside a certain amount today, one can determine the future value of that current sum and therefore plan for retirement expenses. The required rate of return influences the amount to be invested as well as the risk profile, including risk tolerance, investment goals, and horizon. A loan amortization schedule is a schedule of payments for paying off a loan. An amortization schedule breaks down the payments into interest and principal, which is useful because these amounts vary with each amortized loan payment. Determine the loan interest rate by dividing the interest payment by the month one loan balance. Assuming the same principal balance, one would choose the loan with the lowest interest rate. If a lower monthly payment is needed, then one would extend the loan over a longer period by choosing to make more payments. (a) There is a risk of default, which occurs when a company fails to pay an interest or principal payment as scheduled. Interest rate risk affects the