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    Concepts in Time Value of Money

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    Please refer to the attachment/s for missing diagrams.
    Answers are provided for the problems listed below. You may not find the solutions of all problems listed in the attachment/s.

    1. Tom borrows $ 6000 for 5 five at 8% interest compounded annually. He repays the loan in a single payment at the end of the 5 year period. How much is his payment?
    $7680
    $8400
    $8820
    $9140

    2. Tom borrows $ 6000 for 5 years at 8 % per year simple interest. He repays the loan with a single payment at the end of the 5 years. The value of the payment is most nearly
    $8250
    $8400
    $8820
    $9250

    3. The interest rate is 10 % compounded annually. Ten thousand dollars 3 years from today is equivalent to a value today that is most nearly
    $7513
    $8140
    $8477
    $13310

    4. Gloria borrows $ 3,000 for three years at 6 % simple interest per year. She pays the principle and interest in a single payment at the end of three years. The amount of interest ($) Gloria pays is most nearly
    $500
    $540
    $565
    $590

    5. Gloria borrows $ 3,000 for three years at 6 % interest per year, compounded annually. She pays the principle and interest in a single payment at the end of three years. The amount of interest ($) Gloria pays is most nearly
    $565
    $575
    $585
    $595

    6. Harry borrows $ 10,000 for ten years at 12 % interest. He pays the principle and interest at the end of the ten years. His total payment ($) at the end of ten years is most nearly
    $29,000
    $31,000
    $32,000
    $33,000

    7. Harry borrows $ 10,000 for ten years at 12 % interest, compounded every six months. He pays the principle and interest at the end of the ten years. His total payment ($) at the end of ten years is most nearly

    $29,000
    $31,000
    $32,000
    $33,000

    8. Harry borrows $ 10,000 for ten years at 12 % interest, compounded every three months (quarterly). He pays the principle and interest at the end of the ten years. His total payment ($) at the end of ten years is most nearly
    $29,000
    $31,000
    $32,000
    $33,000

    9.
    The value of (F/P, 6%, 6) is most nearly
    0.6663
    0.7050
    1.419
    1.501

    10.
    The value of (P/F, 4%, 9) is most nearly
    0.6756
    0.7026
    0.7084
    0.7307

    11.
    The value of (F/P,11%,10) is most nearly
    0.3310
    0.3574
    2.845
    2.940

    12. The interest rate is 7%.
    $ 4,000

    P
    The value of P ($) is most nearly
    $2,850
    $3,050
    $3,550
    $ 4,110

    13. Interest rate = 9 %.
    $ 2,000

    Q
    The value of Q ($) is most nearly
    $ 1,500
    $ 2,145
    $ 2,825
    $ 2,930

    14. The interest rate is 10 %. I deposit $ 100 today. One year from today I deposit $ 200. How much will I have ($) four years from today?
    $ 413
    $ 419
    $ 425
    $ 439

    15. At the end of two years, what will be the balance in the local bank?
    $ 3,150
    $ 3.300
    $ 3,306
    $ 3,312

    16. At the end of two years, what will be the balance in the out of town bank?
    $3,150.
    $3,300
    $3,306.
    $3,312

    17. How much additional interest will be earned by using the out of town bank?
    $ 3
    $ 5
    $ 6
    $12

    18. How much is the lump sum payment that Marty owes under the original contract?
    $371.
    $385.
    $394.
    $423.

    19. How much is the alternate payment proposed?
    $371.
    $385.
    $394.
    $423.

    20. Which alternative should be selected?
    Original Contract
    Alternate Payment

    21. Consider the following Cash Flow Table
    Year Cash Flow
    0 -1,000
    1 0
    2 0
    3 - W
    4 0
    5 0
    6 + $ 4,000
    Interest rate is 8%. The value ($) of W is most nearly
    $ 1,522
    $ 1,780
    $ 1,915
    $ 2,110

    22. P = $ 4,000 i = 10 % n = 5 .The value of F ($) is most nearly
    $ 5,450.
    $ 5,900
    $ 6,250
    $ 6,450.

    23. P = $ 2,000 F = $ 2,800 n = 6 i (%) is most nearly
    5.22%
    5.76%
    5.89%
    6.24%

    © BrainMass Inc. brainmass.com October 10, 2019, 5:19 am ad1c9bdddf
    https://brainmass.com/economics/the-time-value-of-money/concepts-time-value-money-500996

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    1
    PV=$6000, i=8%, n=5
    FV=PV*(1+i)^n=6000*(1+8%)^5=$8816
    Correct option is C. $8820

    2
    Simple interest=PV*i*n=6000*8%*5=$2400
    Total payment at the end of 5 years=6000+2400=$8400
    Option B i.e. $8400 is correct

    3.
    FV=$10000, i=10%, n=3
    PV=FV/(1+i)^3=10000/(1+10%)^3=$7513
    Option A i.e. $7513 is correct

    4.
    PV=$3000, i=6%, n=3
    S.I.=PV*i*n=3000*6%*3=$540
    Option B i.e. $540 is correct

    5.
    PV=$3000, i=6%, n=3
    FV=PV*(1+i)^n=3000*(1+6%)^3=$3573
    Interest=FV-PV=3573-3000=$573
    Option B i.e. $575 is ...

    Solution Summary

    There are 23 basic problems in finance. Solution to each problem depicts the methodology to find out the value of desired parameter.

    $2.19