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    Time Value of Money

    Uploaded by

    Mark Linekar
    This document contains information about interest rates, compounding, loans, and financial goals. It provides nominal interest rates, effective annual rates, and future values for various compounding periods. It also includes amortization schedules for loans with varying balances, interest rates, and payment amounts. Finally, it discusses calculations for reaching financial goals like saving for retirement or college, including required deposit amounts and timeframes.

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    © All Rights Reserved
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    Time Value of Money

    Uploaded by

    Mark Linekar
    26 views19 pages
    This document contains information about interest rates, compounding, loans, and financial goals. It provides nominal interest rates, effective annual rates, and future values for various compounding periods. It also includes amortization schedules for loans with varying balances, interest rates, and payment amounts. Finally, it discusses calculations for reaching financial goals like saving for retirement or college, including required deposit amounts and timeframes.

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    This document contains information about interest rates, compounding, loans, and financial goals. It provides nominal interest rates, effective annual rates, and future values for various compounding periods. It also includes amortization schedules for loans with varying balances, interest rates, and payment amounts. Finally, it discusses calculations for reaching financial goals like saving for retirement or college, including required deposit amounts and timeframes.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    26 views19 pages

    Time Value of Money

    Uploaded by

    Mark Linekar
    This document contains information about interest rates, compounding, loans, and financial goals. It provides nominal interest rates, effective annual rates, and future values for various compounding periods. It also includes amortization schedules for loans with varying balances, interest rates, and payment amounts. Finally, it discusses calculations for reaching financial goals like saving for retirement or college, including required deposit amounts and timeframes.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 19

    Bank A

    Nominal
    EAR
    a.)

    4% annual comp
    4%

    Bank B
    Nominal
    3.50% daily compounding
    EAR
    3.56%
    b.)

    NOMINAL INTEREST RATE


    Nominal bank rate
    EAR bank
    EAR customers
    APR Customers

    6%
    6.168%
    8.168%
    7.8771%

    BUILDING CREDIT COST INTO PRICES


    100
    100.0333
    100.0667
    100.1
    100.1334
    100.1668
    100.2002
    100.2336
    100.267
    100.3004
    100.3338
    100.3673
    100.4007
    100.4342
    100.4677
    100.5012
    100.5347
    100.5682
    100.6017
    100.6352
    100.6688
    100.7023
    100.7359
    100.7695
    100.8031
    100.8367
    100.8703
    100.9039
    100.9375
    100.9712
    101.0048
    101.0385
    101.0722
    101.1059
    101.1396
    101.1733
    101.207
    101.2408
    101.2745
    101.3083
    101.342
    101.3758
    101.4096
    101.4434
    101.4772

    12
    12.004
    12.008
    12.012
    12.01601
    12.02001
    12.02402
    12.02803
    12.03204
    12.03605
    12.04006
    12.04407
    12.04809
    12.0521
    12.05612
    12.06014
    12.06416
    12.06818
    12.0722
    12.07623
    12.08025
    12.08428
    12.08831
    12.09234
    12.09637
    12.1004
    12.10443
    12.10847
    12.11251
    12.11654
    12.12058
    12.12462
    12.12866
    12.13271
    12.13675
    12.1408
    12.14484
    12.14889
    12.15294
    12.15699
    12.16104
    12.1651
    12.16915
    12.17321
    12.17727

    0.033333
    0.033344
    0.033356
    0.033367
    0.033378
    0.033389
    0.0334
    0.033411
    0.033422
    0.033433
    0.033445
    0.033456
    0.033467
    0.033478
    0.033489
    0.0335
    0.033512
    0.033523
    0.033534
    0.033545
    0.033556
    0.033567
    0.033579
    0.03359
    0.033601
    0.033612
    0.033623
    0.033635
    0.033646
    0.033657
    0.033668
    0.03368
    0.033691
    0.033702
    0.033713
    0.033724
    0.033736
    0.033747
    0.033758
    0.033769
    0.033781
    0.033792
    0.033803
    0.033814
    0.033826

    100.0333
    100.0667
    100.1
    100.1334
    100.1668
    100.2002
    100.2336
    100.267
    100.3004
    100.3338
    100.3673
    100.4007
    100.4342
    100.4677
    100.5012
    100.5347
    100.5682
    100.6017
    100.6352
    100.6688
    100.7023
    100.7359
    100.7695
    100.8031
    100.8367
    100.8703
    100.9039
    100.9375
    100.9712
    101.0048
    101.0385
    101.0722
    101.1059
    101.1396
    101.1733
    101.207
    101.2408
    101.2745
    101.3083
    101.342
    101.3758
    101.4096
    101.4434
    101.4772
    101.5111

    % pf price rise

    3.045%

    (or)
    =((1+(0.12/360))^90)-1

    3.045%

    101.5111
    101.5449
    101.5787
    101.6126
    101.6465
    101.6804
    101.7142
    101.7481
    101.7821
    101.816
    101.8499
    101.8839
    101.9178
    101.9518
    101.9858
    102.0198
    102.0538
    102.0878
    102.1218
    102.1559
    102.1899
    102.224
    102.2581
    102.2922
    102.3263
    102.3604
    102.3945
    102.4286
    102.4628
    102.4969
    102.5311
    102.5653
    102.5995
    102.6337
    102.6679
    102.7021
    102.7363
    102.7706
    102.8048
    102.8391
    102.8734
    102.9077
    102.942
    102.9763
    103.0106

    12.18133
    12.18539
    12.18945
    12.19351
    12.19758
    12.20164
    12.20571
    12.20978
    12.21385
    12.21792
    12.22199
    12.22607
    12.23014
    12.23422
    12.2383
    12.24238
    12.24646
    12.25054
    12.25462
    12.25871
    12.26279
    12.26688
    12.27097
    12.27506
    12.27915
    12.28324
    12.28734
    12.29143
    12.29553
    12.29963
    12.30373
    12.30783
    12.31193
    12.31604
    12.32014
    12.32425
    12.32836
    12.33247
    12.33658
    12.34069
    12.3448
    12.34892
    12.35304
    12.35715
    12.36127

    0.033837
    0.033848
    0.03386
    0.033871
    0.033882
    0.033893
    0.033905
    0.033916
    0.033927
    0.033939
    0.03395
    0.033961
    0.033973
    0.033984
    0.033995
    0.034007
    0.034018
    0.034029
    0.034041
    0.034052
    0.034063
    0.034075
    0.034086
    0.034097
    0.034109
    0.03412
    0.034131
    0.034143
    0.034154
    0.034166
    0.034177
    0.034188
    0.0342
    0.034211
    0.034223
    0.034234
    0.034245
    0.034257
    0.034268
    0.03428
    0.034291
    0.034303
    0.034314
    0.034325
    0.034337

    101.5449
    101.5787
    101.6126
    101.6465
    101.6804
    101.7142
    101.7481
    101.7821
    101.816
    101.8499
    101.8839
    101.9178
    101.9518
    101.9858
    102.0198
    102.0538
    102.0878
    102.1218
    102.1559
    102.1899
    102.224
    102.2581
    102.2922
    102.3263
    102.3604
    102.3945
    102.4286
    102.4628
    102.4969
    102.5311
    102.5653
    102.5995
    102.6337
    102.6679
    102.7021
    102.7363
    102.7706
    102.8048
    102.8391
    102.8734
    102.9077
    102.942
    102.9763
    103.0106
    103.0449

    REACHING A FINANCIAL GOAL


    Rate
    Lump sum Inv
    PMT
    FV

    a.)

    Number of yrs
    Age for Erika to become
    millionaire

    b.)

    Erika Annual contribution

    6%
    $
    30,000.00
    $
    5,000.00
    $ 1,000,000.00
    38.74
    63.74
    $

    35,825.33

    Rate
    Lump sum Inv
    PMT
    FV
    Number of yrs
    Age for Kitty to become
    millionaire

    20%
    $
    30,000.00
    $
    5,000.00
    $ 1,000,000.00
    16.04371287
    41.04

    REQUIRED LUMP SUM PAYMENT


    Monthly payment needed
    Annual interest rate

    $ 10,000.00
    5%

    Initial Deposit by uncle

    $ 35,459.51

    Balance after first withdrawal

    $ 27,232.48

    REACHING A FINANCIAL GOAL


    Need at the end of six years

    $ 10,000.00

    End of year deposit annually


    No of years
    Effective annual rate
    Fuutre Value

    So last payment must be

    1,500.00
    6
    8%
    $ 11,003.89
    496.11

    FV OF UNEVEN CASH FLOW


    Rate of return

    7%

    Saving end of year 1

    5,000.00

    Saving end of year 2


    Saving end of year 3

    $
    $

    5,500.00
    6,050.00

    Down payment

    $ 17,659.50

    Percentage of increase of
    annual savings

    10%

    AMORTIZATION SCHEDULE
    a.)

    Year 1
    Year 2
    Year 3

    Loan Amount
    Loan Tenure
    Interest Rate

    $ 25,000.00
    3 years
    10%

    Beginning
    Repayment of
    Ending
    Payment
    Interest
    Amount
    Principal
    Balance
    $
    25,000.00 $ 10,052.87 $ 2,500.00 $
    7,552.87 $ 17,447.13
    $
    17,447.13 $ 10,052.87 $ 1,744.71 $
    8,308.16 $ 9,138.97
    $
    9,138.97 $ 10,052.87 $
    913.90 $
    9,138.97 $
    -

    b.)
    Payment
    Year 1
    Year 2
    Year 3

    $ 10,052.87
    $ 10,052.87
    $ 10,052.87

    Repayment of
    Principal
    24.87%
    75.13%
    17.36%
    82.64%
    9.09%
    90.91%

    Interest

    AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT


    Cost of house
    Down Payment
    Interest Rate
    Loan tenure in yrs
    Annual affordable payments
    a.) Annual payment if loan
    tenure 3 years
    b.) Annual payment if loan
    tenure 30 years
    c.)

    $ 100,000.00
    $ 10,000.00
    7%
    3
    $
    7,500.00

    $
    $

    34,294.65 (not affordable)


    7,252.78 (affordable)

    Year 1
    Year 2
    Year 3

    Beginning
    Amount
    $ 90,000.00 $
    $ 89,047.22 $
    $ 88,027.75 $

    Balloon Payment

    86,936.92

    Payment
    7,252.78 $
    7,252.78 $
    7,252.78 $

    Repayment of
    Principal
    6,300.00 $
    952.78
    6,233.31 $
    1,019.47
    6,161.94 $
    1,090.83

    Interest

    Ending
    Balance
    $ 89,047.22
    $ 88,027.75
    $ 86,936.92

    NONANNUAL COMPOUNDING
    a.)

    b.)

    Deposit every 6 month


    No of deposit
    Nomial Int Rate
    Periodic Int rate

    1,000.00
    5
    4%
    2%

    Value after 3 yrs

    5,308.12

    Future value
    Nomial Int Rate
    Periodic Int rate

    $ 10,000.00
    4%
    1%

    Value at mid year

    9,802.96

    Value two monthly payments

    4,877.09

    PAYING OFF CREDIT CARDS


    Nominal Interest rate
    Cost of stereo
    Minimum Payment on the card

    $
    $

    Periodic Interest rate


    a.) No of months
    b.) if monthly payment of $ 30
    c.) Extra amount in $ 10 plan

    18%
    350.00
    10.00
    1.5% (monthly)

    50
    13
    112.38

    PV AND A LAWSUIT SETTLEMENT


    Annual Interest Rate

    7%

    Pain and suffering claim


    Legal Expenses

    $
    $

    100,000.00
    20,000.00

    Total Earnings 2007


    Total Earnings 2008
    Total Earnings 2009
    Total Earnings 2010
    Total Earnings 2011

    $
    $
    $
    $
    $

    34,000.00
    35,020.00
    36,070.60
    37,152.72
    38,267.30

    Actual payment on Dec 31,2009

    309,014.91

    (based on dec
    31,2008)
    Salary Rise per year

    3%

    REQUIRED ANNUITY PAYMENTS


    Annual Inflation
    Rate of Interest

    5%
    8%

    Purchasing power of $ 40,000


    when he retires

    65,155.79

    Current savings

    100,000.00

    Value of his savings at time he


    retires

    215,892.50

    End of year deposits

    36,949.61

    Value of his total retirement


    income at the time he retires

    751,165.30

    Difference

    535,272.80

    REQUIRED ANNUITY PAYMENTS


    Rate
    At Age: 13 Yrs
    Current Cost
    Annual rate of rise of cost

    6%

    15,000.00
    5%
    Savings

    7,500.00

    Value of savings
    when she enters
    college

    $ 10,036.69

    At Age: 18 Yrs
    Value of total cost when she
    $
    enters college

    75,500.06

    1St year cost


    2nd year cost
    3rd year cost
    4th year cost

    $
    $
    $
    $

    19,144.22
    20,101.43
    21,106.51
    22,161.83

    Six deposits needed

    9,385.00

    Total cost - savings


    Amount
    needed

    65,463.37

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