Chapter 5 the time value of money

Chapter 5 Time Value of Money 179 ermediate blems 5-9 5-10 PRESENT AND FUTURE VALUES FOR DIFFERENT PERIODS Find the following values using the ators and then a financial calculator Compounding/discounting occurs annually. a. An initial $600 compounded for 1 year at 6% b. An initial $600 compounded for 2 years at 6% c. The present value of $600 due in 1 year at a discount rate of 6% d. The present value of $600 due in 2 years at a discount rate of 6% PRESENT AND FUTURE VALUES FOR DIFFERENT INTEREST RATES Find the following values. Compounding/discounting occurs annually. a. An initial $200 compounded for 10 years at 4% b. An initial 5200 compounded for 10 years at c. The present value of $200 due in 10 years at 4% d. The present value of $1,80 due in 10 years at 8% and at 4% e. Define present male and illustrate it using a time line with data from part d. How are present values affected by interest rates? GROWTH RATES Sawyer Corporation's 2015 sales were 55 million. Its 2010 sales were $2.5 million 5-11 5-12 a. At what rate have sales been growing? b. Suppose someone made this statement: "Sales doubled in 5 years. This represents a growth of 100% in 5 years, so dividing 100% by 5, we find the growth rate to be 20% per year." Is the statement correct? EFFECTIVE RATE OF INTEREST Find the interest rates earned on each of the following: a. You borre 5720 and promise to pay back $792 at the end of 1 year b. You lend $720 and the borrower promises to pay you $792 at the end of 1 year. c. You borrow $65,000 and promise to pay back 998,319 at the end of 14 years d. You borrow $15,000 and promise to make payments of S4,058.60 at the end of each year for 5 years. TIME FOR A LUMP SUM TO DOUBLE How long will it take $300 to double if it ears the following rates? Compounding occurs once a year. 5-13 b. 13% c. 21% d. 100% 5-14 FUTURE VALUE OF AN ANNUITY Find the future tules of these ordinary condities Compounding occurs once a year. a. $500 per year for 8 years at 14% b. $250 per year for 4 years at 7% c. $700 per year for 4 years at 0% d. Rework parts a, b, and c assuming they are ammunities due. 5-15 PRESENT VALUE OF AN ANNUITY Find the present values of these ordinary annuities. Discounting occurs once a year. a. $600 per year for 12 years at 8% b. $300 per year for 6 years at 4% c. $500 per year for 6 years at 0% d. Rework parts a, b, and c assuming they are annuities due. 5-16 PRESENT VALUE OF A PERPETUITY What is the present value of a $600 perpetuity if the interest rate is 5%? If interest rates doubled to 10%, what would its present value be? 5-17 EFFECTIVE INTEREST RATE You borrow $230,000; the annual loan payments are $20,430.31 for 30 years. What interest rate are you being charged?