Reference no: EM131226963

Question 1:

a. Find the FV of $1,000 invested to earn 10% annually 5 years from now. Answer this question by using a math formula and also by using the Excel function wizard.

Experiment by changing the input values to see how quickly the output values change.

b. Now create a table that shows the FV at 0%, 5%, and 20% for 0, 1, 2, 3, 4, and 5 years. Then create a graph with years on the horizontal axis and FV on the vertical axis to display your results.

To create the graph, first select the range C33:E38. Then click the chart wizard. Then follow the menu. It is easy to make a chart, but a lot of detailed steps are involved to format it so that it's "pretty." Pretty charts are generally not necessary to get the picture, though. Note that as the last item in the chart menu you are asked if you want to put the chart on the worksheet or on a separate tab. This is a matter of taste. We put the chart below on the spreadsheet so we could see how changes in the data lead to changes in the graph.

c. Find the PV of $1,000 due in 5 years if the discount rate is 10% per year. Again, work the problem with a formula and also by using the function wizard.

d. A security has a cost of $1,000 and will return $2,000 after 5 years. What rate of return does the security provide?

e. Suppose California's population is 30 million people, and its population is expected to grow by 2% per year. How long would it take for the population to double?

f. Find the PV of an ordinary annuity that pays $1,000 at the end of each of the next 5 years if the interest rate is 15%. Then find the FV of that same annuity.

g. How would the PV and FV of the above annuity change if it were an annuity due rather than an ordinary annuity?

h. What would the FV and the PV for parts a and c be if the interest rate were 10% with semiannual compounding rather than 10% with annual compounding?

i. Find the PV and FV of an investment that makes the following end-of-year payments. The interest rate is 8%.

j. Suppose you bought a house and took out a mortgage for $50,000. The interest rate is 8%, and you must amortize the loan over 10 years with equal end-of-year payments. Set up an amortization schedule that shows the annual payments and the amount of each payment that repays the principal and the amount that constitutes interest expense to the borrower and interest income to the lender.

(1) Create a graph that shows how the payments are divided between interest and principal repayment over time.

(2) Suppose the loan called for 10 years of monthly payments, 120 payments in all, with the same original amount and the same nominal interest rate. What would the amortization schedule show now?

Attachment:- Build a Model.xlsx