FIN 3000

 Homework Assignment 1

Time Value of Money

 Show all work for problems, by describing key strokes or formula used.

1. What is “Opportunity Cost”, and how is this concept used in Time Value of Money analysis?

2. What is an “Annuity” as it relates to Time Value Of Money Analysis?

3. Which is preferable, a savings account that pays 5% interest compounded semiannually, or one that pays 5% interest compounded daily? Explain

4. If you deposit $10,000 in a bank account that pays 10% annually, how much will you have in 5 years? 10 years?

5. If you have a security that will pay you $5,000 in 20 years, what is the present value if securities of equal risk pay 7% annually?

6. Assume that you currently have $42,180.53 in an investment account. You plan to invest $5,000 at the end of every future year until your account totals $250,000. You are invested in the stock market, so you expect to earn 12% annually on the account. How many years will it take to reach your goal?

7. An investment will pay $100 at the end of each of the next 3 years. $200

   Find the Indicated Value for each of the following:

8. $500, compounded for 2 years at 6%

9. The present value of $500 due in 1 year at a discount rate of 6%

10. The present value of $500 due in 2 years at a discount rate of 6%.