Question

I want a case study with question and answer of this topic : time value of money that include present value and future value also annuity and compound.

Answer 1

Mr X is residing in California. He works for Company ABC. Recently he thought of buying a house and motorcycle. He contacted a Bank for this purpose and the bank offered him some advice on mortgage and saving accounts. However being a non finance student, he is confused and seeks your help in understanding teh concept of time value of money. He particularly have the following questions

a. Mr X want to purchase a House costing $ 50,000, paying $ 5,000 down payment, rest by monthly payment at 12% rate of interest in 20 years. He want to know his monthly payment.

b. He also want to know how much money he should save today if he wants to buy a motor cycle after 5 years for $ 10,000 if the rate of return he can earn is 8%, compounding semi annually.

c. If he want to save a semi annual annuity instead of lump sum payment, how much does he have to same in each six month period.

His monthly payment will be $ 495.49 using excel formual as shown below.

Answer b He has to save $ 6755.64 now to have $ 10,0000 in future. The excel sheet is given below:

Answer c He has to save $ 832.91 semi annually to have $ 10,000 in 5 year time.