Reference no: EM132555188

Assignment - Time Value of Money

Question 1) David has inherited some money and will receive equal payments of $35,000 at the end of each year for the next 18 years. David's attorney offers to pay him $350,000 today if he agrees to give him this stream of payments. If David thinks that he can invest at 6%, should he accept this offer.

Question 2) Paul has won a lottery. The winnings consist of 12 equal annual payments of $115,000. You decide to save all of this money for your retirement and deposit it into an account that earns 4% per year. What is the amount of your retirement fund?

Question 3) If Ann propose to buy an asset for $600,000 and she will sell off the asset in 3 years for $ $750,000.00 If Ann knows that she could invest in another investment of similar risk at 8 %, how would you advise Ann on this?

Question 4) You are planning to send your son to university in 19 years. Assume that you need $550,000 at that time to pay for college, and earn average of 3 %, how much money do you need to invest today to achieve your goal.

Question 5) Your company proposes to buy a product for $3800. You will sell off the asset in three year for $4500. You know you could invest in other investment alternative of similar risks at 10 %. What do you think of the proposed investment?

Question 6) Cathy has won the lottery and will receive equal payments of $215,000 at the end of each year for the next 13 years. Cathy's attorney offers to pay her $2,000,000 today if she agrees to give him this stream of payments. If Cathy thinks that she can invest at 6%, should she accept this offer?

Question 7) You are interested in buying a business venture. You have determined that it will generate $250,000 per year for 3 years, $300,000 per year for the next 4 years, and $375,000 for the next 5 years. How much would you be willing to pay for this business if you felt the discount rate should be 9%.

Question 8) If your company is financing a new equipment with a loan of $250,000 to be repaid in 3 year time and the Bank offers you an annual interest rate of 5 %, calculate the amount of monthly installment for the loan.

Question 9) You earned some money. The payment is in 18 equal annual payments of $70,000. You decide to save all of this money for your future and deposit it into an account that earns 3% per year. What is the amount of your future fund?

Question 10) Jon inherits a trust fund of $380,000 that only be cashed out in 8 years. Jon needs money now. Mike offers to pay Jon $300,000 for the rights of the money. If Jon can get a loan at 4%, should Jon accept Mike's offer?

Question 11) Tony wanted to invest in an asset which is for sale for $ 4,000,000.00. The asset produces the following cash flows and if the discount rate is 12 %, calculate the Net Present Value of the above scheme and advise if Tony should invest in the asset.
a, Year 1 - 4 $500,000 per year
b. Year 5 - 7 $525,000 per year
c. Year 8-12 $650,000 per year
d. Year 13-16 $700,000 per year

Question 12) Jack is considering purchasing a property. He has calculated that it will generate $105,000 per year for 3 years, $150,000 per year for the next 2 years, $185,000 per year for the next 4 years and $250,000 per year for the next 6 years. How much is Jack be willing to pay for this property if he felt the discount rate should be 10 %.

Question 13) Helen have estimated for her next 4 years of expenditure, she will need to spend as follows:- $20,000 due at the end of first year, $25,000 at the end of the next year, $35,000 at the end of the third year, and $40,000 at the fourth year. Assume a discount rate of 5 %, how much should Helen invest today to pay for her future coats?

Question 14) Calculate the Annual Installment of a mortgage loan $12,500,000.00 over a period of 18 years at 4 % per annum.

Question 15) Billy's finance loan of $2,500,000 to be repaid in 15 year time and the Bank offers him an annual interest rate of 8 %, calculate the amount of Monthly Installment for the loan.

Question 16) You are planning for a trip to Europe in 3 years. Assume that you need $250,000 at that time to pay for cost of the trip, and if your money earns an average of 5 %, how much money do you need to invest today to achieve your goal.

Question 17) What is the Future Value of a 9 -year Ordinary Annuity of $650 with 10 % interest rate?

Note: Need only Q1, 3, 5, 6, 10, 12