You have just completed your bachelor’s degree in business and 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. What’s the future value of $1200 after 3 years if it earns 10%, annual compounding? What is the present value of $1200 to be received in 3 years if the interest rate is 10%, annual compounding? What annual interest rate would cause $1000 to grow to $1250 in 3 years? B. What’s the difference between an ordinary annuity and an annuity due? What is the future value of a 3-year, $1000 ordinary annuity if the annual interest rate is 10%? What is its present value? What would the future and present values be if it was an annuity due? What would the present value be if this was a perpetuity? C. Will the future value be larger or smaller if we compound an initial amount more often than annually (e.g., semi-annually, holding the stated (nominal) rate constant)? Why? Define (a) the stated (or quoted or nominal) rate, (b) the effective interest rate (EIR) What is the EIR corresponding to a nominal rate of 10% compounded semi-annually; compounded quarterly; compounded daily? What is the future value of $1000 after 5 years under 12% semi-annual compounding; quarterly compounding? D. Construct an amortization schedule for a $10 000, 10% annual interest loan with three equal instalments. What is the annual interest expense for the borrower and the annual interest income for the lender during Year 2? Question 2 Dillon have applied to the Jamaica National Building Society for mortgage loan to purchase a house in Montego Bay St. James. The loan is to be repaid at the end of five (5) years. The building society agrees to lend $1,800,000 at a rate of 18% compounded annually. What is the annual payment that will completely amortize the loan in five years? Prepare the amortization schedule for this loan. What is the total interest to be paid over the life of the loan? If interest rate was compounded quarterly, what is the effective annual rate?

You have just completed your bachelor’s degree in business and 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. What’s the future value of $1200 after 3 years if it earns 10%, annual compounding? What is the present value of $1200 to be received in 3 years if the interest rate is 10%, annual compounding? What annual interest rate would cause $1000 to grow to $1250 in 3 years? B. What’s the difference between an ordinary annuity and an annuity due? What is the future value of a 3-year, $1000 ordinary annuity if the annual interest rate is 10%? What is its present value? What would the future and present values be if it was an annuity due? What would the present value be if this was a perpetuity? C. Will the future value be larger or smaller if we compound an initial amount more often than annually (e.g., semi-annually, holding the stated (nominal) rate constant)? Why? Define (a) the stated (or quoted or nominal) rate, (b) the effective interest rate (EIR) What is the EIR corresponding to a nominal rate of 10% compounded semi-annually; compounded quarterly; compounded daily? What is the future value of $1000 after 5 years under 12% semi-annual compounding; quarterly compounding? D. Construct an amortization schedule for a $10 000, 10% annual interest loan with three equal instalments. What is the annual interest expense for the borrower and the annual interest income for the lender during Year 2? Question 2 Dillon have applied to the Jamaica National Building Society for mortgage loan to purchase a house in Montego Bay St. James. The loan is to be repaid at the end of five (5) years. The building society agrees to lend $1,800,000 at a rate of 18% compounded annually. What is the annual payment that will completely amortize the loan in five years? Prepare the amortization schedule for this loan. What is the total interest to be paid over the life of the loan? If interest rate was compounded quarterly, what is the effective annual rate?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter4: Managing Your Cash And Savings

Section: Chapter Questions

Problem 7FPE: Calculating interest earned and future value of savings account. If you put 6,000 in a savings...

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Question

What’s the future value of $1200 after 3 years if it earns 10%, annual compounding?
What is the present value of $1200 to be received in 3 years if the interest rate is 10%, annual compounding?

What annual interest rate would cause $1000 to grow to $1250 in 3 years?

What’s the difference between an ordinary annuity and an annuity due?
What is the future value of a 3-year, $1000 ordinary annuity if the annual interest rate is 10%?

What is its present value?

What would the future and present values be if it was an annuity due?
What would the present value be if this was a perpetuity?

Will the future value be larger or smaller if we compound an initial amount more often than annually (e.g., semi-annually, holding the stated (nominal) rate constant)? Why?
Define (a) the stated (or quoted or nominal) rate, (b) the effective interest rate (EIR)

What is the EIR corresponding to a nominal rate of 10% compounded semi-annually; compounded quarterly; compounded daily?

What is the future value of $1000 after 5 years under 12% semi-annual compounding; quarterly compounding?

Construct an amortization schedule for a $10 000, 10% annual interest loan with three equal instalments.
What is the annual interest expense for the borrower and the annual interest income for the lender during Year 2?

Question 2

Dillon have applied to the Jamaica National Building Society for mortgage loan to purchase a house in Montego Bay St. James. The loan is to be repaid at the end of five (5) years. The building society agrees to lend $1,800,000 at a rate of 18% compounded annually.

What is the annual payment that will completely amortize the loan in five years?
Prepare the amortization schedule for this loan.

What is the total interest to be paid over the life of the loan?

If interest rate was compounded quarterly, what is the effective annual rate?

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