1405 WordsMar 17, 20126 Pages

5-42 Integrated Case
Time Value of Money Analysis. You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions: a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2; (2) an ordinary annuity of $100 per year for 3 years; and (3) an uneven cash flow stream of -$50, $100, $75 and $50 at the end of Years 0 through 3.
(1)
100
0
1
2
100
0
1
2
(2)
I%I%
I%I%
(3)
100
50
75
0
1
2
3
-50
100
50
75
0
1
2
3
-50
b. 1. What’s the future value of $100 after 3 years if it earns 10%, annual compounding?
FV = PV (1 + I)N = $100 (1.10)3 = $133.10 2. What’s the*…show more content…*

Why? * The future value will be larger if we compound an initial amount more often than annually. For example, you deposit $100 in a bank that pays a 10% annual interest rate but credits interest each 6 months. Therefore, in the second 6-month period, you earn interest on your original $100 plus interest on the interest earned during the first 6 months. 14. Define (a) the stated (or quoted or nominal) rate, (b) the periodic rate, and (c) the effective annual rate (EAR or EFF%).
(a) The stated rate is the contracted or quoted interest rate and is also referred to as the annual percentage rate (APR).
(b) The periodic rate is the annual percentage rate divided by the number of periods per year.
(c) The effective annual rate is the annual rate of interest actually being earned, as opposed to the quoted rate. 15. What is the EAR corresponding to a nominal rate of 10% compounded semiannually? Compounded quarterly? Compounded daily? * Compounded Semiannually:
EAR = [1+ 0.10/2]2 – 1 = 0.1025 = 10.25% * Compounded Quarterly:
EAR = [1+ 0.10/4]4 – 1 = 0.1038 = 10.38% * Compounded Daily:
EAR = [1+ 0.10/365]365 – 1 = 0.1052 = 10.52% 16. What is the future value of $100 after 3 years under 10% semiannual compounding? Quarterly compounding? * Semiannual Compounding:
IPER = I / M = 10% / 2 = 5%
Number of Periods = NM = (3)(2) = 6
FV = $100 (1.05)6 =

Related

## Money Demand Literature Review : Analysis Essay

1149 Words | 5 PagesMoney Demand Literature Review Wienclaw (2015) states that regression analysis allows for the use of variables in mathematical models to determine the value of an unknown variable. This can require several assumptions, including that the information being used is correct. However, as Wienclaw (2015) points out, in reality, data is not always perfect or correct. In the business world this requires great care when analyzing models and using regression analysis (Wienclaw, 2015). Models and regression

## Key Ways A Company Can Identify And Review Financial Data

890 Words | 4 PagesIt is necessary for a business to find multiple ways to improve the way they receive and analysis data. The four ways a company can identify and review financial data is by reviewing the company’s financial statements, balance sheets, their income statements and statements of cash flow. The first type of review that can be performed is with a financial statement. The purpose of the income statement is to report or measure the amount of revenue a company has generated throughout a certain

## Essay on Chapter 1 Profits Managers And Markets 1

1201 Words | 5 Pagesmanager – Economics – Managerial economics defined • Economics of Effective Management – Identifying goals and constraints – Recognize the nature and importance of profits – Understand incentives – Understand markets – Recognize the time value of money – Use marginal analysis • Learning managerial economics 1-2 Introduction Economics • The science of making decisions in the presence of scarce resources. – Resources are anything used to produce a good or service, or achieve a goal. – Decisions are

## How Money Is Still Relevant For Scientific Analysis

1524 Words | 7 PagesAs a result of money being developed as a practical means to exchange goods, the question of what is money is still relevant for scientific analysis. What is it really? Is it a social construct that has no intrinsic meaning? Is a dollar bill money? Is it a representation for value, or it is valuable intrinsically? Who decides the worth? What do we mean when we speak of money? The answers to these questions are not fully understood in our analysis of the current literature. Our goal is to explore

## Green Affordable Housing Essay

1516 Words | 7 Pagesaffordable housing. Recent studies are showed that green buildings have a modest initial cost premium, but the long-term benefits far exceed the additional capital costs. For this report, I will introduce a financial analysis -Net Present Value (NPV), and discuss the impacts of NPV analysis for green affordable housing. Definition of affordable housing Affordable housing means housing is affordable to those households with a median or lower income as rated by county or state. According to the United

## Finance As The Science And Art Of Managing Money

1518 Words | 7 PagesCherix Leung BUS202 Anna Kwong Reflective Paper Chapter 1 – Introduction to Finance In the book Managerial Finance, it defines finance as the science and art of managing money. Whether we are dealing with finance on the personal or business perspective, the general ideas behind them are inseparable, equally serious and important. Individuals make plenty of decisions, short-term and long-term plans based on their monthly income and expenses, which it is going to directly affect how they are going

## How Technology Improves The Overall Clinical And Operational Expenses For Healthcare

1308 Words | 6 Pagesthat assist the clinicians and surgeons. As a result, this makes the medical procedures safer and invasive and reduces patient recovery times. Furthermore, technology improves the overall clinical and operational expenses for healthcare providers. It is important for hospital and clinicians to purchase or lease innovative medical equipment that reduces procedure times, and provide efficient and accurate outcomes while generating capital is a benefit. Preventative care is an essential element that

## Buffet's Investment Philosophy Essay

1346 Words | 6 PagesAssessment of the eight major elements of Buffet's investment philosophy: 1 Economic reality, not accounting reality. Analysis: One tends to agree with Buffett on this philosophy. Accounting is a product of many estimates and judgments. It is essentially a rear-view mirror, looking back at what has happened. To add to the problem the view changes with each new accounting period. In contrast the economic reality is the view through the windshield at what lies ahead. It consists of

## Correlation Between Money And Real Interest Rate

1576 Words | 7 Pagesrate in the money market. If the real interest rate is above the nominal interest rate, either the investment exceeds the desired savings or the supply of money exceeds the demand of money. Shifting the saving curve to the right, and the demand of money to the right, will bring the interest rate in both markets to be the same. Money and real Interest Rate Fisher tries to establish the link between money and the interest rate. For him, the interest rate fluctuation in terms of money and goods is

## Case Study Report on Achieve Logic

737 Words | 3 Pagesstudents. Our team had to write a report about this company and to value the Project Achieve. We started by calculating the pre- and post money valuation, then the cash flow projections, and we finished by calculating, the expected return on equity and the final equity value. To facilitate the calculation of this value, our team made some assumptions that we will explain and justify all along that report. ANALYSIS A. PRE- AND POST-MONEY VALUATION Initially funded by angel investors, the project had

### Money Demand Literature Review : Analysis Essay

1149 Words | 5 Pages### Key Ways A Company Can Identify And Review Financial Data

890 Words | 4 Pages### Essay on Chapter 1 Profits Managers And Markets 1

1201 Words | 5 Pages### How Money Is Still Relevant For Scientific Analysis

1524 Words | 7 Pages### Green Affordable Housing Essay

1516 Words | 7 Pages### Finance As The Science And Art Of Managing Money

1518 Words | 7 Pages### How Technology Improves The Overall Clinical And Operational Expenses For Healthcare

1308 Words | 6 Pages### Buffet's Investment Philosophy Essay

1346 Words | 6 Pages### Correlation Between Money And Real Interest Rate

1576 Words | 7 Pages### Case Study Report on Achieve Logic

737 Words | 3 Pages