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You have applied for a job. As part of its evaluation process, you must take an...

You have applied for a job. As part of its evaluation process, you must take an examination of the time value of money analysis covering the following questions. Please show your work including each step by using your calculator OR Excel. (Identify N, I/Y, PV, PMT, and FV)

A) What’s the future value of $200 after 3 years if it earns 8%, annual compounding?

B) What’s the present value of $200 to be received in 3 years if the interest rate is 8%, annual compounding?

C) What annual interest rate would cause $1,000 to grow to $2,000 in 2 years?

D) What is the present value of a 6-year, $100 ordinary annuity if the annual interest rate is 4%?

Expert Solution

a.Information provided:

Present value= $200

Time= 3 years

Interest rate= 8%

The question is solved by computing the future value.

Enter the below to calculate the future value:

PV= -200

N= 3

I/Y= 8

Press the CPT key and FV to calculate the future value.

The value obtained is 251.94.

Therefore, the future value is $251.94.

b.Information provided:

Future value= $200

Time= 3 years

Interest rate= 8%

Enter the below in a financial calculator to compute the present value:

FV= 200

N= 3

I/Y= 8

Press the CPT key and PV to calculate the present value.

The value obtained is 158.77.

Therefore, the present value is $158.77.

3.Information provided:

Future value= $2,000

Present value= $1,000

Time= 2 years

The question is solved by computing the yield to maturity.

The yield to maturity is calculated by entering the below in a financial calculator:

FV= 2,000

PV= -1,000

N= 2

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 41.42.

Therefore, the interest rate is 41.42%.

d.Information provided:

Future value= $100

Time= 6 years

Interest rate= 4%

Enter the below in a financial calculator to compute the present value:

FV= 100

N= 6

I/Y= 4

Press the CPT key and PV to calculate the present value.

The value obtained is 79.03.

Therefore, the present value is $79.03.

In case of any query, kindly comment on the solution.

jeff jeffy answered 2 years ago

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