Time value of money definitions

Assignment Help Finance Basics
Reference no: EM1327464

As a financial manager you will often have to compare cash payments which occur at different dates. To make optimal decisions, you must understand the relationship between a dollar today [present value] and a dollar in the future [future value].

Future value is the amount to which an investment will grow after earning interest. Interest can be of two types: i) simple interest, and ii) compound interest.

1) How would you define time value of money in your own words? Please provide a brief definition of time value of money in your own words.

2) To what extent is it important for financial managers to understand the concept of time value of money? Why? Please explain your reasoning in two to three paragraphs.

If you do not know how to use calculator, please use the tables to answer question 3, 4, 5, and 6.
Brealey, R.A., Myers, S.C., & Allen, F. (2005). Principles of corporate finance, 8th Edition. The McGraw?Hill. Retrieved May, 2012, from

https://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf

3) Calculate the future value of the followings:

a. $190,537.19 if invested for six years at a 8% interest rate
b. $231,891.22 if invested for four years at a 9% interest rate
c. $310,891.12 if invested for nine years at an 5% interest rate
d. $420,520.22 if invested for fifteen years with a 1% interest rate

Please use Table 2 [https://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]

4) Calculate the present value of the followings:

a. $552,126.17 to be received four years from now with a 3% interest rate
b. $125,003.21 to be received three years from now with an 8% interest rate
c. $621,567.35 to received nine years from now with a 14% interest rate
d. $93,000.05 to be received eleven years from now with a 2% interest rate

Please use Table 1 [https://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]

5) Suppose you are to receive a stream of annual payments (also called an "annuity") of $225,891.12 every year for five years starting at the end of this year. The interest rate is 7%. What is the present value of these five payments?

Please use Table 3 [https://jcooney.ba.ttu.edu/fin3322/Brealey%20Files/Appendix%20A%20-%20Present%20Value%20Tables.pdf]

6) Suppose you are to receive a payment of $337,891.24 at the end of each year for seven years. You are depositing these payments in a bank account that pays 6% interest. Given these seven payments and this interest rate, how much will be in your bank account in seven years? If you do not know how to use calculator, please use Table [https://www.principlesofaccounting.com/ART/fv.pv.tables/fvofordinaryannuity.htm]

Please include the references used to obtain information/response

Reference no: EM1327464

Questions Cloud

Where is the reason of most of the attacks : Where is the reason of most of the attacks.explain the differences between the two main classes of intrusions: misuse and anomaly.
Explain what information is provided by the dss : Briefly explain what information is provided by the DSS that aid in decision making and indicate what decisions would you not want made by DSS?
You are the manager of specific location sales : You are the manager of specific location sales for a national company that provides, among other things, cable television service.
Discuss the opportunity cost : Discuss the opportunity cost
Time value of money definitions : As a financial manager you will often have to compare cash payments which take place at different dates. To make optimal decisions, you must understand the relationship between a dollar today [present value] and a dollar in the future [future valu..
What risks does this use of technology introduce to project : Risks with use of technology - What risks does this use of technology introduce to the project and What is the impact of each risks? The probability
Define why it is suggested that for security reasons : Since many commercial APs have the SSID broadcast option enabled by default, so clients may easily detect the presence of an AP. APs are also configured as DHCPs and Firewalls.
What threats and challenges is wal-mart currently facing : What threats and challenges is Wal-Mart currently facing.
Explain good customer relations : Explain Good Customer Relations and to create a web site to serve customers and promote the company

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Prepare income statement, balance sheet and cash flow

Prepare Income Statement, Balance Sheet and Cash Flow. Also calculate DCF value per share,  Use assumptions given on the tab "Assumptions" in attached Excel file

  Short description on credit risk analysis of the bond

Short Description on Credit risk analysis of the different bonds and explain why you would pay more or less for their bonds

  Risk tolerance as well as your need to diversify

Risk tolerance as well as your need to diversify the portfolio and the Effects of Portfolio Risk for Average Stocks will impact your future investment decisions

  Objective type questions on payback period, npv and irr

Objective type questions on payback period, NPV and IRR and what is the internal rate of return on this project

  Explain capital budgeting involves calculation of npv

Explain Capital budgeting involves calculation of NPV and IRR and Which projects will the firm select for investment

  Calculation of multiple cash flows for a year

Calculation of multiple cash flows for a year and the amount of the annuity shown below is the amount of each individual cash flow

  Computation of selection of the project

Computation of selection of the project and evaluating two mutually exclusive projects and Costs and cash flows are given in the following table

  Find the underwriters profit on the offer at various offer

Find the underwriters profit on the offer at various offer prices and Casual Corners specializes in the underwriting of small companies

  Analysis of financial position of the company

Analysis of Financial position of the company - Why is the Notes Payable in this answer different from the EFN in #3 above?

  Computation of value of the bond at various options

Computation of value of the bond at various options and Suppose your company is selling a bond that will pay you $1000 in one year from today

  Objective type questions on capital structure

Objective type questions on cost of capital and capital structure and Which one of the following means of management compensation is designed to help eliminate the agency problem

  Computation of ratio for given financial statement

Computation of ratio for given financial statement and you are also requested to make recommendations for the future

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd