Question

1. Draw time lines for (a) a $2000 lump sum cash flow at the end of year 4, (b) an ordinary annuity of $1000 per year for 5 years, and (c) an uneven cash flow stream of -$450, $1000, $650, $850 and $500 at the end of years 0 through 4.
2. What is the future value of an initial $1000 after 5 years if it is invested in an account paying 5% annual interest?
3. What is the present value of $1000 to be received in 4 years if the appropriate interest rate is 5%?
4. We sometimes need to find out how long it will take a sum of money (or anything else) to grow to some specified amount. For example, if a company's sales for 2020 is $1000 and expected to grow at a rate of 10% per year, how long will it take sales to double?
5. If you invested $10,000 in an investment account and you expect it to double in 4 years, what interest rate must it earn?
6. What is the future value of a 5-year ordinary annuity of $1000 if the appropriate interest rate is 5%? What is the present value of the annuity?
7. What is the future value of $1000 after 4 years under 10% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding
8. What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 5%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?
9. Construct an amortization schedule for a $1,000, 12% annual rate loan with 4 equal installments. What is the annual interest expense for the borrower, and the annual interest income for the lender, during Year 2?
10. Suppose on January 1 you deposit $1000 in an account that pays a nominal, or quoted, interest rate of 12%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months later?
11. You want to buy a car, and a local bank will lend you $10,000. The loan would be fully amortized over 6 years (72 months), and the nominal interest rate would be 10%, with interest paid monthly. What is the monthly loan payment?
12. While Mary Corens was a student at the University of Tennessee, she borrowed $20,000 in student loans at an annual interest rate of 5%. If Mary repays $200 per year, then how long (to the nearest year) will it take her to repay the loan?

Answer 1

Answer 1 Time line charts are given below. It shows the amount of cash flows during the life time of asset/project

Answer 2

Future Value = Present Value (1+rate)^n = 1000*(1+0.05)^5 = $1276.78

Answer 3

Present Value = Future Value /(1+rate)^n = 1000 / (1+0.05)^4 = $822.70

Answer 4 7.27 years

This question can be solved using excel formula nper. Its shown in the following pic