Homework Assignment 1
Homework Assignment 1
Time Value of Money
Show all work for problems, by describing key strokes or formula used.
- What is “Opportunity Cost”, and how is this concept used in Time Value of Money analysis?
- What is an “Annuity” as it relates to Time Value Of Money Analysis?
- Which is preferable, a savings account that pays 5% interest compounded semiannually, or one that pays 5% interest compounded daily? Explain
- If you deposit $10,000 in a bank account that pays 10% annually, how much will you have in 5 years? 10 years?
- If you have a security that will pay you $5,000 in 20 years, what is the present value if securities of equal risk pay 7% annually?
- Assume that you currently have $42,180.53 in an investment account. You plan to invest $5,000 at the end of every future year until your account totals $250,000. You are invested in the stock market, so you expect to earn 12% annually on the account. How many years will it take to reach your goal?
- An investment will pay $100 at the end of each of the next 3 years. $200
Find the Indicated Value for each of the following:
- $500, compounded for 2 years at 6%
- The present value of $500 due in 1 year at a discount rate of 6%
- The present value of $500 due in 2 years at a discount rate of 6%.
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