Explore BrainMass

Time Value of Money: Future Valuation

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

You hold $2000 as a customer deposit, but the customer wants to make sure he does not loose on the opportunity cost of the dollars. You agree to pay the customer 10% interest during the holding period. At the end of 3 years you need to return the deposit and the interest to the customer. How much will you have to give the customer in 3 years?

© BrainMass Inc. brainmass.com October 17, 2018, 12:20 pm ad1c9bdddf

Solution Preview

We would have to know and understand the type of interest we are paying in 3 years. If we are paying simple interest, then the calculation is:

$2000 x 10% = $200. So we would remit $2000 + $200 = $2200.00 to the customer after the 3 year period is up.

If we are compounding the interest, then the calculation is $2000 x 1.1 for the first year = $2200.

For the second year the calculation is $2200 x 1.1 = $2420. For the third year, the calculation ...

Solution Summary

How to calculate simple and compound interest on a principal amount

Similar Posting

Stock and Bond Valuation, Time Value of Money, and WACC

1. Valuing a bond and valuing a stock:
a. Bond valuation-what is the PV or the appropriate selling price of a 30 year bond which has a 10% coupon, paid annually, and has a 10 years till maturity, during a time when market interest rates are 5%
b. Using the dividend discount model determine the appropriate market price for a share of the XYZ company when:
i. Its expected next dividend is $1.00
ii. Its recent dividend growth rate is 5%
iii. The prevailing discount rate is 7%

2. Determining present and future values:
c. What is the PV of $1000 received 10 years from now if your personal investment track record reaps a 10% return
d. What is the future value, 5 years from now, of $100 invested at 3% today

3. Capital project analysis:
Project A costs $10,000 and saves $2000 in each of 6 years. What is the NPV of investing in this project if the discount rate of your company is
e. 2%....if its
f. 10%
g. for the very same information, what's the simple payback for project A

4. WACC:
h. in laymans terms what is WACC; why is it important to a company
i. calculate this firms WACC, when common stockholders expect a 10% return, and they represent 33% ownership in the company, preferred stock was issued at 6%, and this represents 33% of the firms value, and bonds outstanding, issued at 8% represent 33% of the firms value; their tax rate is 40%.

View Full Posting Details