Assignment: Time Value of Money
Instructions
Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work. You may use Excel to work the problems. Note that the tables for Problems 2-5 are also available in the Financial Concepts 2 Assessment Tables document linked in the assessment resources.
Problem 1.Calculate the future value of $3,500, compounded annually for each of the following:
• 10 years at 7 percent.
• 15 years at 9 percent.
• 20 years at 5 percent.
Problem 2.Calculate the present value for each of the following:
|
Problem 2. Calculating Present Values
|
|
Present Value
|
Years
|
Interest Rate
|
Future Value
|
|
5
|
4%
|
$15,250.
|
|
8
|
7%
|
$30,550.
|
|
12
|
10%
|
$850,400.
|
|
20
|
15%
|
$525,125.
|
Problem 3.Calculate the interest rate for each of the following:
|
Problem 3. Calculating Interest Rates
|
|
Present Value
|
Years
|
Interest Rate
|
Future Value
|
|
$282.
|
2
|
|
$325.
|
|
$607.
|
6
|
|
$891.
|
|
$32,600.
|
12
|
|
$142,385.
|
|
$57,435.
|
22
|
|
$463,200.
|
Problem 4. Calculate the number of years in each of the following:
|
Problem 4. Calculating the Number of Periods
|
|
Present Value
|
Years
|
Interest Rate
|
Future Value
|
|
$765.
|
|
6%
|
$1,385.
|
|
$845.
|
|
9%
|
$4,752.
|
|
$17,200.
|
|
11%
|
$432,664.
|
|
$23,700.
|
|
14%
|
$182,529.
|
Problem 5. Refer to the cash flows listed for the Kelly Company investment projects in the table below. The discount rate is 6 percent. Calculate the present value of these cash flows. What is the present value at:
• 12 percent?
• 17 percent?
|
Problem 5. Present Value and Multiple Cash Flows
|
|
Year
|
Cash Flow
|
|
1
|
$750.
|
|
2
|
$840.
|
|
3
|
$1,230.
|
|
4
|
$1,470.
|
Problem 6. Value the bond Midcorp has issued, with the following characteristics:
• Par: $1,000.
• Time to maturity: 28 years.
• Coupon rate: 7.50 percent.
• Semiannual payments.
Calculate the price of this bond if the YTM is each of the following:
• 7.50 percent.
• 9 percent.
• 4 percent.
Problem 7. Calculate the bond yield in the following scenario: Two years ago, Walters Electronics Corporation issued 20-year bonds at a coupon rate of 6.75 percent. The bonds make semiannual payments, and currently sell for 106 percent of par value. Calculate the YTM.
Problem 8. Calculate the stock value in the following scenario: The next dividend payment by RST, Incorporated will be $3.45 per share. The dividends are projected to sustain a 6.50 percent growth rate into the future. If RST stock currently sells for $67 per share, what is the required return?
Problem 9. Calculate the stock value in the following scenario: Nickels Corporation will pay a $3.10 per share dividend next year. The company plans to increase its dividend by 4.25 percent per year, indefinitely. How much will you pay for the company's stock today if you require a 12 percent return on your investment?