Time value of money
Not what you're looking for?
1. Your brother has offered to give you $100, starting next year, and after that growing at 3% for the next 20 years. You would like to calculate the value of this offer by calculating how much money you would need to deposit in the local bank so that the account will generate the same cash flows as he is offering you. Your local bank will guarantee a 6% annual interest rate so long as you have money in the account.
a) How much money will you need to deposit into the account today?
b) Using Excel Spreadsheet, show explicitly that you can deposit this amount of money into the account, and every year withdraw what your brother has promised leaving the account with nothing after the last withdrawal.
2. You have decided to buy a perpetuity. The bond makes one payment at the end of every year forever and has an interest rate of 5%. If you initially put $1000 into the bond, what is the payment every year?
Purchase this Solution
Solution Summary
The solution explains some questions relating to time value of money
Solution Preview
a) What we have to calculate is the present value of a growing annuity. The amount to be deposited in the bank would be the present value of payments. The payments grow at a constant rate. ...
Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.