AMBA 630 Problem Assignment Time Value of Money
Problem Assignment: Time Value of Money
Use Excel Functions to correctly calculate answers to all problems below
Explain in words what you do to make each calculation
Explain in words what the answers mean
In problems with an A and B part, explain what you learn from the difference
If you deposit $15,000 today in a Certificate of Deposit and earn 1% annual interest, how
much will you have in 8 years? 1 Answer: $16,242.85 Point Value Point Value 3.0% Point Value 3.0% USE FV Function 2 Melanie will receive a graduation gift of $7,000 from her parents in 4 years. If the
discount rate is 3%, what is the gift worth today? Answer: $6,219.41 Point Value
USE PV Function June received a life insurance payout from her grandmother in the form of an annuity.
She will get $15,000 per year for the next 30 years. How much is that worth today if the
current long term interest rate is 2.2%? This is an ordinary annuity. 3a Answer: $326,889.00 Point Value 3.0% Point Value 5.0% USE PV Function 3b If Interest rates rise to 6%, what will be the value today of the annuity in 3 a?
Answer: You calculate USE PV Function 4a Vinod deposits $3,000 into an IRA account that invests in long term U S Treasury Bonds. Current
Interest rates for the 20 year bond are 2.25%. How long will it take to double Vinod’s money?
Answer: 31.15 years Point Value 3.0% Point Value 5.0% USE NPER Function 4b How long will it take Vinod to triple his money at 2.25%? Answer: You calculate
USE NPER Function 5a The Woods have $50,000 to use as a down-payment on a house, and they want to borrow $250,000
to buy a house for $300,000. The current annual mortgage interest rate is 3%. What will their
monthly payment be for a 30 year loan that has equal monthly payments. They will owe zero at the
end of the mortgage. Answer:
House price
Down
Mortgage $300,000
$50,000
$250,000 -$1,054.01 Point Value
NPER
30 years
360 NPER Rate
3.0000% Annual
0.2500% USE PMT Function
5b Mrs. Woods sees an advertisement for a 15 year loan at a rate of 2.5%. What would be the
mortgage payment if they borrow $250,000 at this lower interest rate? 3.0% Answer: House price
Down
Mortgage You calculate Point Value
NPER
15 years
180 NPER $300,000
$50,000
$250,000 5.0% Rate
2.5000% Annual
0.2083% USE PMT Function
6 Kim paid $400 per month into her 401K retirement plan. After 30 years, she had accumulated
$500,000. What average annual rate of interest had he earned over the 30 years, assuming
monthly compounding? Answer: 7.12% Point Value 5.0% USE RATE Function
NPER
30 years
360 NPER 7 For the year that ended in January 2000, Wal-Mart had revenues of $165 billion. For the year
ended in January 2015, it had revenues of $485 billion. What has been the average compound
growth rate? Answer: 7.45% Point Value
Year
Year
NPER 8a $2,050,008.05 PV
PMT -$50,000.00
-$9,000.00 Point Value 5.0% Bola’s friend Marshall heard a speech by John C. (Jack) Bogle, founder of The Vanguard Group
of Mutual Funds, one of the lowest cost and most successful group of funds. Jack said that with
the increasing need to reduce carbon emissions, it is unlikely that long term stock returns can
exceed 6% per year. Steps to reduce carbon will likely reduce prospects for economic growth in
Mr. Bogle’s opinion. How much will Bola have if Jack Bogle is correct and the earnings will be
6% per year compounded annually? Answer: 9 2015
2000
15 Bola has accumulated $50,000 in her thrift savings plan at her job at the Federal Aviation
Administration. The government puts in 1% of her pay and matches up to another 4% if she puts in
5% out of her pay.
Bola earns $90,000 a year and plans to add 5% from her income plus the agency 5% for a total of
$9,000 per year.
Her cousin Eugene says that if she invests in stocks, she can earn 12% per year because that has
been the long term history. How much will she have in 25 years at retirement if she can earn 12%
per year compounded annually? Answer: 8b 5.0% You calculate Point Value Christina hopes to open a Deli in 2015. 2015. The initial investment will be $85,000. She expects will
Christina hopes to open a Deli in The initial investment will be $85,000. She expects that that the Deli
generate the positivewill generate the positive cash flow as indicatedat 7% per year, what will be the Net
cash flow as indicated
that that the Deli7% as the discount rate.below. If she can borrow money below. If she can borrow
Present Value? Use
money at 7% per year, what will be the Net Present Value? Use 7% as the discount rate. Year
2016
2017
2018
2019
2020 Cash Flow
$22,000
$24,000
$29,000
$30,000
$31,000 5.0% 2021
2022 $27,000
$22,000
Use Excel Functions to correctly calculate answers to all problems below
Explain in words what you do to make each calculation
Explain in words what the answers mean
In problems with an A and B part, explain what you learn from the difference
If you deposit $15,000 today in a Certificate of Deposit and earn 1% annual interest, how
much will you have in 8 years? 1 Answer: $16,242.85 Point Value Point Value 3.0% Point Value 3.0% USE FV Function 2 Melanie will receive a graduation gift of $7,000 from her parents in 4 years. If the
discount rate is 3%, what is the gift worth today? Answer: $6,219.41 Point Value
USE PV Function June received a life insurance payout from her grandmother in the form of an annuity.
She will get $15,000 per year for the next 30 years. How much is that worth today if the
current long term interest rate is 2.2%? This is an ordinary annuity. 3a Answer: $326,889.00 Point Value 3.0% Point Value 5.0% USE PV Function 3b If Interest rates rise to 6%, what will be the value today of the annuity in 3 a?
Answer: You calculate USE PV Function 4a Vinod deposits $3,000 into an IRA account that invests in long term U S Treasury Bonds. Current
Interest rates for the 20 year bond are 2.25%. How long will it take to double Vinod’s money?
Answer: 31.15 years Point Value 3.0% Point Value 5.0% USE NPER Function 4b How long will it take Vinod to triple his money at 2.25%? Answer: You calculate
USE NPER Function 5a The Woods have $50,000 to use as a down-payment on a house, and they want to borrow $250,000
to buy a house for $300,000. The current annual mortgage interest rate is 3%. What will their
monthly payment be for a 30 year loan that has equal monthly payments. They will owe zero at the
end of the mortgage. Answer:
House price
Down
Mortgage $300,000
$50,000
$250,000 -$1,054.01 Point Value
NPER
30 years
360 NPER Rate
3.0000% Annual
0.2500% USE PMT Function
5b Mrs. Woods sees an advertisement for a 15 year loan at a rate of 2.5%. What would be the
mortgage payment if they borrow $250,000 at this lower interest rate? 3.0% Answer: House price
Down
Mortgage You calculate Point Value
NPER
15 years
180 NPER $300,000
$50,000
$250,000 5.0% Rate
2.5000% Annual
0.2083% USE PMT Function
6 Kim paid $400 per month into her 401K retirement plan. After 30 years, she had accumulated
$500,000. What average annual rate of interest had he earned over the 30 years, assuming
monthly compounding? Answer: 7.12% Point Value 5.0% USE RATE Function
NPER
30 years
360 NPER 7 For the year that ended in January 2000, Wal-Mart had revenues of $165 billion. For the year
ended in January 2015, it had revenues of $485 billion. What has been the average compound
growth rate? Answer: 7.45% Point Value
Year
Year
NPER 8a $2,050,008.05 PV
PMT -$50,000.00
-$9,000.00 Point Value 5.0% Bola’s friend Marshall heard a speech by John C. (Jack) Bogle, founder of The Vanguard Group
of Mutual Funds, one of the lowest cost and most successful group of funds. Jack said that with
the increasing need to reduce carbon emissions, it is unlikely that long term stock returns can
exceed 6% per year. Steps to reduce carbon will likely reduce prospects for economic growth in
Mr. Bogle’s opinion. How much will Bola have if Jack Bogle is correct and the earnings will be
6% per year compounded annually? Answer: 9 2015
2000
15 Bola has accumulated $50,000 in her thrift savings plan at her job at the Federal Aviation
Administration. The government puts in 1% of her pay and matches up to another 4% if she puts in
5% out of her pay.
Bola earns $90,000 a year and plans to add 5% from her income plus the agency 5% for a total of
$9,000 per year.
Her cousin Eugene says that if she invests in stocks, she can earn 12% per year because that has
been the long term history. How much will she have in 25 years at retirement if she can earn 12%
per year compounded annually? Answer: 8b 5.0% You calculate Point Value Christina hopes to open a Deli in 2015. 2015. The initial investment will be $85,000. She expects will
Christina hopes to open a Deli in The initial investment will be $85,000. She expects that that the Deli
generate the positivewill generate the positive cash flow as indicatedat 7% per year, what will be the Net
cash flow as indicated
that that the Deli7% as the discount rate.below. If she can borrow money below. If she can borrow
Present Value? Use
money at 7% per year, what will be the Net Present Value? Use 7% as the discount rate. Year
2016
2017
2018
2019
2020 Cash Flow
$22,000
$24,000
$29,000
$30,000
$31,000 5.0% 2021
2022 $27,000
$22,000
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