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    Julie Ann Ll. Moina Bsba Fm4 Personal Finance Let's Try This! 1. Calculating Present and Future Values. (3 Points)

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    Julie Ann Moina
    1. Calculating present and future values of investments. Investing $5,000 at 4% annually will be worth $6,083 in 5 years and $10,956 in 20 years. To accumulate $50,000 in 5 years at 7% annually requires an initial investment of $35,714. 2. To save $450,000 in 6 years to buy a $2 million home, assuming a 5% return, requires saving $66,000 annually. 3. An app that generates $60,000 annually for 10 years has a present value of $754,674 discounted at 5% annually. Selling the app now for $500,000 is not as financially beneficial as keeping

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    Julie Ann Ll. Moina Bsba Fm4 Personal Finance Let's Try This! 1. Calculating Present and Future Values. (3 Points)

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    Julie Ann Moina
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    1. Calculating present and future values of investments. Investing $5,000 at 4% annually will be worth $6,083 in 5 years and $10,956 in 20 years. To accumulate $50,000 in 5 years at 7% annually requires an initial investment of $35,714. 2. To save $450,000 in 6 years to buy a $2 million home, assuming a 5% return, requires saving $66,000 annually. 3. An app that generates $60,000 annually for 10 years has a present value of $754,674 discounted at 5% annually. Selling the app now for $500,000 is not as financially beneficial as keeping

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    1. Calculating present and future values of investments. Investing $5,000 at 4% annually will be worth $6,083 in 5 years and $10,956 in 20 years. To accumulate $50,000 in 5 years at 7% annually requires an initial investment of $35,714. 2. To save $450,000 in 6 years to buy a $2 million home, assuming a 5% return, requires saving $66,000 annually. 3. An app that generates $60,000 annually for 10 years has a present value of $754,674 discounted at 5% annually. Selling the app now for $500,000 is not as financially beneficial as keeping

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    23 views2 pages

    Julie Ann Ll. Moina Bsba Fm4 Personal Finance Let's Try This! 1. Calculating Present and Future Values. (3 Points)

    Uploaded by

    Julie Ann Moina
    1. Calculating present and future values of investments. Investing $5,000 at 4% annually will be worth $6,083 in 5 years and $10,956 in 20 years. To accumulate $50,000 in 5 years at 7% annually requires an initial investment of $35,714. 2. To save $450,000 in 6 years to buy a $2 million home, assuming a 5% return, requires saving $66,000 annually. 3. An app that generates $60,000 annually for 10 years has a present value of $754,674 discounted at 5% annually. Selling the app now for $500,000 is not as financially beneficial as keeping

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    © All Rights Reserved
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    of 2

    Julie Ann Ll.

    Moina BSBA FM4 PERSONAL FINANCE


    Let’s Try This!
    1. Calculating Present and Future Values. (3 points)
    Use future or present value techniques to solve the following problems:
    a. How much money you will have in five years if you invest P5,000 now and earn an annual return
    of 4%.

    FV= PV (1+r)^n

    FV=PV (1+4%)^5

    FV= 5,000 (1+.04)^5

    FV= 5,000 (1.216652902)

    FV= P6, 083.26

    b. What if you invested your P5,000 for twenty years instead of five years? Assuming that the
    interest rate is still 4%. How much money will you have?
    FV= PV (1+r)^n

    FV=PV(1+4%)^n

    FV= 5,000 (1+.04)^20

    FV= 5,000 (2.191123143)

    FV= P10, 955.62

    c. You would like to accumulate P50,000 in five years by making a single investment today. You
    believe you can achieve a return from your investment of 7% annually. What is the amount that
    you need to invest today to achieve your goal?

    FV
    PV=
    ( 1+i )n

    50,000
    PV=
    ( 1+.07 )5

    50,000
    PV=
    1.402551731

    1. The Time Value of Money: Putting a Peso Value on Financial Goals (4 points)
    Assume that one of your financial goals is to buy your first home in six years. Your first question
    is how much you want to spend on that home. Let’s say you’ve done your research and feel that, taking
    future inflation into consideration, you can buy a nice condominium for about P2,000,000 in six years. Of
    course, you won’t need the full amount, but assuming that you’ll make a 20% down payment of P400,000
    and pay P50,000 in closing costs, you need P450,000. You now have a well-defined financial goal: To
    accumulate P450,000 in six years to buy a home costing about P2,000,000. 
    The next question is how to get all that money. You can easily estimate how much to save or
    invest each year if you know your goal and what you expect to earn on your savings or investments. In
    this case, if you have to start from scratch (that is if nothing has already been saved) and estimate that you
    can earn about 5% on your money.  How much will you have to save or invest per year for each of the
    next six years to accumulate P450,000 over that time?

    ( 1+ r )n−1
    FV= PV
    r

    ( 1+.05 )6−1
    450,000 = PV
    .05

    450,000 = PV (6.801912813)

    450,000
    =
    6.801912813

    1. Calculating the Present Value of Future Cash Flows to Make Smart Decisions (3 points)
    You developed an app that you believe will generate P60,000 in income (after paying income
    taxes) for you at the end of every year for the next ten years, and the app will become useless after that
    point. You will invest these funds and expect to earn a 5% annual rate of return. A financial firm has
    offered to purchase your app from you for P500,000. Are you better off keeping your app (in order to
    generate income over the next ten years), or selling the app today to receive a large payment now?

    ( 1+r )n −1 If I choose to sell the app today, I will receive


    FV of Annuity = P ⌊ ⌋
    r P500,000 but if I opt to keep the app and let it
    generate income for 10 years I will receive P754,
    ( 1+.05 )10−1
    =60,000
    [ .05 ] 673.55. It’s obvious which one is higher. However,
    when making financial decision I cannot just simply
    look at the numbers. I also need to consider other
    ( 1.05 )10−1
    =60,000
    [ .05 ] factors like my needs. If my needs cannot wait for ten
    years, then it is better to choose selling the app. On
    the other hand, if my needs can wait for 10 years, then
    =60,000 it is wiser to keep the app.
    1.6288946−1
    [ .05 ] Furthermore, I also need to consider the time value of
    money. Because the value of money is affected by the
    0.6288946 point in time it is received. If I opt to sell the app, I
    =60,000 [ .05 ] might be able to purchase more things. But if I opt to
    wait 10 years then there is a high chance that products
    are more expensive and I can only purchase less.

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