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Ch3InterestRateCalculationAssignment#1Spring25

The document provides calculations related to money and banking, focusing on simple loans, fixed payment loans, coupon bonds, and lottery payouts. It includes formulas for calculating payments, present values, and internal rates of return (IRR) for various financial scenarios. Additionally, it discusses the implications of choosing between lump sum and annuity payments based on different interest rates.

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shmitty643
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© © All Rights Reserved
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Download as XLSX, PDF, TXT or read online on Scribd
3 views

Ch3InterestRateCalculationAssignment#1Spring25

The document provides calculations related to money and banking, focusing on simple loans, fixed payment loans, coupon bonds, and lottery payouts. It includes formulas for calculating payments, present values, and internal rates of return (IRR) for various financial scenarios. Additionally, it discusses the implications of choosing between lump sum and annuity payments based on different interest rates.

Uploaded by

shmitty643
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Money & Banking All Interest Rates are annual rates, compounded annually.

Chapter 3 Calculations Show any work in red. Have your answer for each calculated in the box
next to each question. Answers should be appropriately labeled in dollars or percentages.
1. Simple Loan

a. Calculate Payment Loan Amount = $1000 Term = 2 years Interest Rate = 7%


1000 2 0.07

b. Calculate Present Value Future Repayment = $1,144. Term = 2 years Interest Rate = 5%
1144.9 2 0.05

c. Calculate IRR Purchase Price = $1,000 Term = 2 years Repayment Amount = $1,050
1000 2 1050

2. Fixed Payment Loan

a. Calculate Payment Loan Amount = $10,000 Term = 10 years Interest Rate = 8%


=pmt(interest rate expressed as decimal, years, loan amount)
10000 10 0.08

b. Calculate Present Value Payment Amount = $1,490 Term = 10 years Interest Rate = 6%
1490 10 0.06

c. Calculate IRR Price = $8,000 Term = 10 years Payment Amount = $1,525

example: this is an example of paying -price -5000 list as a negative number


$5000 for a stream of $1200 -list your 1200
payments for the next 5 years annual 1200
=irr(l27:l32) payments 1200
below 1200
the price 1200

3. Coupon Bond

a. Calculate Payment Loan Amount = $1,000 Term = 10 years Interest Rate = 8%


payment for years 1-9 = ($149.03) payment for year 10 = ($1,149.03)
1000 10 0.08

b. Calculate Present Value Interest Rate = 6% Term = 10 years $1000 coupon with 8% payment
($2,880.93) 0.03 20 40 1000

c. Calculate IRR Price = $1,200 Term = 10 years $1000 coupon with 8% payment
(see above for an example)

4. Lottery
a. If you possessed the lump sum, but wanted, instead, a 30-year annuity. What payment could you get if the rate is 2%?

$70,832,636.73

b. What discount rate did the lottery use to determine the lump sum amount?

62%

c. If you could expect a 10% rate of return on investments, would you take the lump sum or the annuity, all else equal? What about a 1%? Expl

Money invested now is better than money invested tomorrow, I would take the lump sum even at 1% in order to take advantage of the
dollars or percentages.
#1
-1000
$47.70
$47.70 $47.70
$47.70
$47.70
($1,127.16) $47.70
$47.70
$47.70
1% $47.70
$47.70
$47.70
$47.70
$47.70
$47.70
loan amount) $47.70
($1,490.29) $47.70
$47.70
$47.70
$10,136.69 $47.70
#2 $47.70
-8000 $47.70
14% 1525 $47.70
list as a negative number 1525 $47.70
1525 $47.70
1525 $47.70
1525 $47.70
1525
1525
1525
1525
1525

-1000
149.03
149.03
149.03
$1,000.00 149.03
149.03
149.03
15% 149.03
149.03
149.03
$1,149.03
al? What about a 1%? Explain why.

order to take advantage of the compounding that the market can offer.

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