Financial Valuation (Time-Value Of Money) Cases
Purpose of Assignment
The purpose of this assignment is to provide students an opportunity to apply the concepts of time value of money covered in Ch. 13 to integrated case studies.
Assignment Steps
Save your time - order a paper!
Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines
Order Paper NowResources: Financial Valuation (Time-Value of Money) Cases Excel® Template
Save the Financial Valuation (Time-Value of Money) Cases Excel® Template to your computer.
Read the instructions on the first tab.
Complete the three cases located in the template.
PART 2
Quantitative Techniques in Financial Valuation Problem Set
Purpose of Assignment
The purpose of this assignment is to provide students an opportunity to practice and learn the time-value of money concepts covered during Week 4. Students will understand how to evaluate future values, present values, interest rates, and time periods for financial investments.
Assignment Steps
Resources: Quantitative Techniques in Financial Valuation Problem Set Excel® Template
Save the Quantitative Techniques in Financial Valuation Problem Set Excel® Template to your computer.
Read the instructions on the first tab.
Complete the twelve exercises located in the template and record your answers in the highlighted spaces.
Format your paper consistent with APA guidelines.
Question 1
| Barry learned in an online investment course that he should start investing as soon | |||
| as possible. He had always thought that it would be smart to start investing after he | |||
| finishes college and when his salary is high enough to pay the bills and to have money | |||
| left over. He projects that will be 5–10 years from now. Barry wants to compare the | |||
| difference between investing now and investing later. A financial advisor who spoke | |||
| to Barry suggested that a Roth IRA (Individual Retirement Account) would be a good | |||
| investment for him to start. | |||
| 1. If Barry purchases a $2,000 Roth IRA when he is 25 years old and expects to | |||
| earn an average of 6% per year compounded annually over 35 years (until he is | |||
| 60), how much will accumulate in the investment? | |||
| Initial Investment (PV) | |||
| Quoted Rate | |||
| Compounding Frequency | Choose one | ||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | ||
| Quoted Rate divided by m = RATE | |||
| Number of Years | |||
| NPER (Num. of years * m) | |||
| Ending Amount (FV) | |||
| 2. If Barry doesn’t put the money in the IRA until he is 35 years old, how much | |||
| money will accumulate in the account by the time he is 60 years old using the same | |||
| return of 6%? How much less will he earn because he invested 10 years later? | |||
| Initial Investment (PV) | |||
| Quoted Rate | |||
| Compounding Frequency | Choose one | ||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | ||
| Quoted Rate divided by m = RATE | |||
| Number of Years | |||
| NPER (Num. of years * m) | |||
| Ending Amount (FV) | |||
| Difference in amount earned | |||
| FV Part 1 minus FV Part 2 | |||
| 3. Barry knows that the interest rate is critical to the speed at which your investment grows. | |||
| For instance, if $1 is invested at 2% compounded annually, it takes approximately 34.9 years | |||
| to double. If $1 is invested at 5% compounded annually, it takes approximately | |||
| 14.2 years to double. | |||
| Determine how many years it takes $1 to double if invested at 10% compounded annually; at | |||
| 12% compounded annually. | |||
| Hint: The easiest way to get the answer is to use the Rule of 72. | |||
| Years to double the investment = 72 ÷ interest rate | |||
| 4. At what interest rate would you need to invest to have your money double | |||
| in 10 years if it is compounded annually? | |||
| PV | |||
| FV | |||
| NPER | |||
| RATE | — Use the RATE function in Excel. PV should be negative, FV should be positive. PMT should be blank. |
Question 2
| Abdol Akhim has just come from a Personal Finance class where he learned that he | |||
| can determine how much his savings will be worth in the future. Abdol is completing | |||
| his two-year business administration degree this semester and has been repairing | |||
| computers in his spare time to pay for his tuition and books. Abdol got out his savings | |||
| records and decided to apply what he had learned. He has a balance of $1,000 in a | |||
| money market account at First Savings Bank, and he considers this to be an emergency | |||
| fund. His instructor says that he should have 3–6 months of his total bills in an | |||
| emergency fund. His bills are currently $700 a month. He also has a checking account and a | |||
| regular savings account at First Savings Bank, and he will shift some of his funds from | |||
| those accounts into the emergency fund. One of Abdol’s future goals is to buy a house. | |||
| He wants to start another account to save the $8,000 he needs for a down payment. | |||
| 1. How much interest will Abdol receive on $1,000 in a 365-day year if he keeps | |||
| it in the money market account earning 1.00% compounded daily? | |||
| Initial Investment (PV) | |||
| Quoted Rate | |||
| Compounding Frequency | Choose one | ||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | ||
| Quoted Rate divided by m = RATE | |||
| Number of Years | |||
| NPER (Num. of years * m) | |||
| Ending Amount (FV) | |||
| Compound Interest | |||
| 2. How much money must Abdol shift from his other accounts to his emergency fund | |||
| to have four times his monthly bills in the account by the end of the year? | |||
| Desired Emergency fund | |||
| Current balance in money mkt. | |||
| Interest that Abdol will earn | |||
| Balance to be transferred | |||
| 3. Abdol realizes he needs to earn more interest than his current money market can provide. | |||
| Using annual compounding on an account that pays 5.5% interest annually, find the amount | |||
| Abdol needs to invest to have the $8,000 down payment for his house in 5 years. | |||
| Future Value Needed (FV) | |||
| Quoted Rate | |||
| Compounding Frequency | Choose one | ||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | ||
| Quoted Rate divided by m = RATE | |||
| Number of Years | |||
| NPER (Num. of years * m) | |||
| Amount Invested Now (PV) | |||
| 4. Is 5.5% a realistic rate for Abdol to earn in a relatively short-term investment of 5 years, particularly at his bank? | |||
| Hint: For answering this question, explore how much interest do banks pay on short-term investments or CDs. | |||
| Compare this number with 5.5% to see whether it is a realistic goal. If not, propose to Abdol what should he invest in | |||
| instead. |
Question 3
| At 45 years of age, Seth figured he wanted to work only 10 more years. Being a full-time landlord had a lot | ||||||
| of advantages: cash flow, free time, being his own boss—but it was time to start thinking toward retirement. | ||||||
| The real estate investments that he had made over the last 15 years had paid off handsomely. After selling a | ||||||
| duplex and paying the associated taxes, Seth had $350,000 in the bank and was debt-free. With only 10 years | ||||||
| before retirement, Seth wanted to make solid financial decisions that would limit his risk exposure. Fortunately, | ||||||
| he had located another property that seemed to meet his needs— a well maintained four-unit apartment. The | ||||||
| price tag was $250,000, well within his range, and the apartment would require no remodeling. Seth figured he | ||||||
| could invest the other $100,000, and between the two hoped to have $1 million to retire on by age 55. | ||||||
| 1. Seth read an article in the local newspaper stating the real estate in the area had appreciated by 5% per year | ||||||
| over the last 30 years. Assuming the article is correct, what would the future value of the $250,000 apartment | ||||||
| be in 10 years? | ||||||
| Initial Investment (PV) | ||||||
| Quoted Rate | ||||||
| Compounding Frequency | Choose one | |||||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |||||
| Quoted Rate divided by m = RATE | ||||||
| Number of Years | ||||||
| NPER (Num. of years * m) | ||||||
| Ending Amount (FV) | ||||||
| 2. Seth’s current bank offers a 1-year certificate of deposit account paying 2% compounded semiannually. | ||||||
| A competitor bank is also offering 2%, but compounded daily. If Seth invests the $100,000, how much more | ||||||
| money will he have in the second bank after one year, due to the daily compounding? | ||||||
| Current Bank | Competitor Bank | |||||
| Semiannually | Daily | |||||
| Initial Investment (PV) | ||||||
| Quoted Rate | ||||||
| Compounding Frequency | Choose one | |||||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |||||
| Quoted Rate divided by m = RATE | ||||||
| Number of Years | ||||||
| NPER (Num. of years * m) | ||||||
| Ending Amount (FV) | ||||||
| Difference in FV | =D36-C36 | |||||
| 3. After looking at the results from questions 1 and 2, Seth realizes that a 2% return in a certificate of deposit | ||||||
| will never allow him to reach his goal of $1 million in 10 years. Presuming his apartment will indeed be worth | ||||||
| $400,000 in 10 years, compute the future value of Seth’s $100,000 investment using a 10%, 15%, and 20% return | ||||||
| compounded semiannually for 10 years. Will any of these rates of return allow him to accomplish his goal of | ||||||
| reaching $1 million by age 55? | ||||||
| 10% | 15% | 20% | ||||
| Initial Investment (PV) | ||||||
| Quoted Rate | ||||||
| Compounding Frequency | Semiannually | Semiannually | Semiannually | |||
| Number of compoundings (m) | ||||||
| Quoted Rate divided by m = RATE | ||||||
| Number of Years | ||||||
| NPER (Num. of years * m) | ||||||
| Ending Amount (FV) | ||||||
| Plus: Apartment Value | $400,000 | $400,000 | $400,000 | |||
| Total FV | =FV + Apartment Value | |||||
| Which rate of return allows him to accomplish his goal of reaching $1 million? | Choose one | |||||
| 4. A friend of Seth’s who is a real estate developer needs to borrow $80,000 to finish a development project. | ||||||
| He is desperate for cash and offers Seth 18%, compounded monthly, for 2.5 years. Find the future value of | ||||||
| the loan. | ||||||
| Initial Investment (PV) | ||||||
| Quoted Rate | ||||||
| Compounding Frequency | Choose one | |||||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |||||
| Quoted Rate divided by m = RATE | ||||||
| Number of Years | ||||||
| NPER (Num. of years * m) | ||||||
| Ending Amount (FV) | ||||||
| 5. After purchasing the apartment, Seth receives a street, sewer, and gutter assessment for $12,500 due in 2 years. | ||||||
| How much would he have to invest today in a CD paying 2%, compounded semiannually, to fully pay the assessment in 2 years? | ||||||
| Future Value Needed (FV) | ||||||
| Quoted Rate | ||||||
| Compounding Frequency | Choose one | |||||
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |||||
| Quoted Rate divided by m = RATE | ||||||
| Number of Years | ||||||
| NPER (Num. of years * m) | ||||||
| Amount Invested Now (PV) |
