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REC 475 Lecture 6: REC 476- Supply and Demand Part 2_Aug 29

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School
UNC
Department
Recreation
Course
REC 475
Professor
Jeff Nix

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Document Summary

Future value examples: ex: 123,500 for 7 years 4. 3% Step 1: figure out what you are making each year. 123,500 x . 043 = ,310. 50 what you make each year. Step 2: multiple what you make each year by how many years the investment is. 5,310. 50 x 7 = ,173. 50 over the course of seven years (not final answer for future value) Step 3: how much you are actually making it. 37,173. 50 + 123,500 = ,673. 50 final answer: ex: ,123. 67 for 23 years at 12% 1,104,341. 33 + 400,123. 67 = 1,504,464. 99 how much you make from the future value aka your answer. If you see use table a on test it will be future compound interest. Depreciation- quantification of the loss or reduced productivity of buildings and equipment: aka when something losing value over time. Ex: when you buy a car the value of it only depreciates: assumptions of depreciation: All buildings and equipment have a lifespan.

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Related Questions

1. You want to be a millionaire when you retire in 35 years.

How much do you have to save each month if you can earn an 11.5 percent annual return? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Savings per month

$

How much do you have to save each month if you wait 15 years before you begin your deposits? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Savings per month

$

How much do you have to save each month if you wait 25 years before you begin your deposits? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Savings per month

$

2.

Toadies, Inc., has identified an investment project with the following cash flows.

Year

Cash Flow

1

$

1,575

2

1,695

3

1,780

4

1,830

If the discount rate is 7 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Future value

$

If the discount rate is 12 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Future value

$

If the discount rate is 23 percent, what is the future value of the cash flows in year 4? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Future value

$

Part I:
Solve 4 of the following time value of money problems by filling inthe 4 columns to the right of the description.
Be sure to solve 1 problem from each of the following 4 categorieslisted under Problem Types. I have completed the first row as anexample.

Part II:
Discuss how you may use time value of money concepts in yourpersonal life. For example, saving for college tuition orretirement, paying off a car loan or home mortgage. Give specificdetails as to how you would use these formulas for more effectivedecision making. Create 1 description and fill in the table foryour newly created question.

Problem Types:
1 pv = present value of $1
2 fv = future value of $1
3 PVAo = Present Value of an Ordinary Annuity of$1 (payment at end of period)
4 FVAo = Future Value of an Annuity of $1(payment at end of period)

Description Type of Problem Table Formula Answer
1 How much money must your rich unclegive you now to finance four years of college, assuming an annualcost of $48,000 and an interest rate of 6% (applied to theprincipal until disbursed)? Present Value of anordinary Annuity PVAo PV = 48,000(3.465) $166,325.07
2 How much interest would you earn ifyou deposited $300 at 6 percent for 27 months?
3 If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2%, how much will it be worth in fiveyears?
4 How much interest would you pay toborrow $670 for eight months at 12 percent?
5 You wish to borrow $18,000 to buy anew auto-mobile. Rate is 8.6% over five years with monthlypayments. Find the monthly payment.
6 What is the future value of $800 at8 percent after six years?
7 How much would you have in savingsif you kept $200 on deposit for eight years at 8% compoundedsemiannually?
8 You choose to invest $50/month in a401(k) that invests in an international stock mutual fund. Assumingan annual rate of return of 9%, how much will this fund worth ifretiring in forty years?
9 What is the future value of anannual deposit of $230 earning 6 percent for 15years?
10 If you invest $600/Year in a 401(k)that invests in an international stock mutual fund. Assuming anannual rate of return of 9%, how much will this fund worth ifretiring in forty years?
11 What amount would you have in aretirement account if you made annual deposits of $375 for 25 yearsearning 12 percent, compounded annually?
12 What is the present value of $2,200earning 15 percent for eight years?
13 How much money must you set asideat age 20 to accumulate retirement funds of $100,000 at age 65,assuming a rate of interest of 7%?
14 To have $6,000 for a child’seducation in 10 years, what amount should a parent deposit in asavings account that earns 12 percent, compoundedquarterly?
15 If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2% with quarterly compounding, how muchwill it be worth in five years?
16 What is the present value of awithdrawal of $200 at the end of each year for 14 years with aninterest rate of 7 percent?
17 How much would you have to depositnow to be able to withdraw $650 at the end of each year for 20years from an account that earns 11 percent?
18 What would be the annual paymentamount for a $20,000, 10-year loan at 7 percent?

1.

You have $49,061.69 in a brokerage account, and you plan todeposit an additional $5,000 at the end of every future year untilyour account totals $200,000. You expect to earn 9.1% annually onthe account. How many years will it take to reach your goal? Roundyour answer to the nearest whole number.

2.

Present and Future Value of an Uneven Cash Flow Stream

An investment will pay $100 at the end of each of the next 3years, $300 at the end of Year 4, $600 at the end of Year 5, and$800 at the end of Year 6. If other investments of equal risk earn11% annually, what is its present value? Round your answer to thenearest cent.
$

What is its future value? Round your answer to the nearestcent.
$

3.

You want to buy a car, and a local bank will lend you $20,000.The loan would be fully amortized over 3 years (36 months), and thenominal interest rate would be 12%, with interest paid monthly.What is the monthly loan payment? Round your answer to the nearestcent.
$

What is the loan's EFF%? Round your answer to two decimalplaces.
%

4.

  1. Find the present values of the following cash flow streams. Theappropriate interest rate is 5%. Round your answers to the nearestcent. (Hint: It is fairly easy to work this problemdealing with the individual cash flows. However, if you have afinancial calculator, read the section of the manual that describeshow to enter cash flows such as the ones in this problem. This willtake a little time, but the investment will pay huge dividendsthroughout the course. Note that, when working with thecalculator's cash flow register, you must enter CF0 = 0.Note also that it is quite easy to work the problem with Excel,using procedures described in the Chapter 4 Tool Kit.)
    Year Cash Stream A Cash Stream B
    1 $100 $300
    2 400 400
    3 400 400
    4 400 400
    5 300 100

    Stream A $
    Stream B $
  2. What is the value of each cash flow stream at a 0% interestrate? Round your answers to the nearest cent.
    Stream A $
    Stream B $

5.

Find the future values of the following ordinary annuities:

  1. FV of $200 paid each 6 months for 4 years at a nominal rate of12%, compounded semiannually. Round your answer to the nearestcent.
    $
  2. FV of $100 paid each 3 months for 4 years at a nominal rate of12%, compounded quarterly. Round your answer to the nearestcent.
    $
  3. The annuities described in parts a and b have the same amountof money paid into them during the 4-year period and both earninterest at the same nominal rate, yet the annuity in part b earnsmore than the one in part a over the 4 years. Why does thisoccur?
    -Select-The nominal deposits into the annuity in part (b) aregreater than the nominal deposits into the annuity in part (a). Theannuity in part (a) is compounded less frequently; therefore, moreinterest is earned on interest. The annuity in part (a) iscompounded more frequently; therefore, more interest is earned oninterest. The annuity in part (b) is compounded less frequently;therefore, more interest is earned on interest. The annuity in part(b) is compounded more frequently; therefore, more interest isearned on interest.

6.

To complete your last year in business school and then gothrough law school, you will need $25,000 per year for 4 years,starting next year (that is, you will need to withdraw the first$25,000 one year from today). Your uncle offers to put you throughschool, and he will deposit in a bank paying 9.57% interest a sumof money that is sufficient to provide the 4 payments of $25,000each. His deposit will be made today.

  1. How large must the deposit be? Round your answer to the nearestcent.
    $
  2. How much will be in the account immediately after you make thefirst withdrawal? Round your answer to the nearest cent.
    $

    How much will be in the account immediately after you make the lastwithdrawal? Round your answer to the nearest cent. Enter "0" ifrequired
    $

7.

You need to accumulate $10,000. To do so, you plan to makedeposits of $1,450 per year - with the first payment being made ayear from today - into a bank account that pays 10.24% annualinterest. Your last deposit will be less than $1,450 if less isneeded to round out to $10,000. How many years will it take you toreach your $10,000 goal? Round your answer up to the nearest wholenumber.
year(s)

How large will the last deposit be? Round your answer to thenearest cent.
$

8.

  1. It is now January 1. You plan to make a total of 5 deposits of$300 each, one every 6 months, with the first payment being madetoday. The bank pays a nominal interest rate of 10% butuses semiannual compounding. You plan to leave the moneyin the bank for 10 years. How much will be in your account after 10years? Round your answer to the nearest cent.
    $
  2. You must make a payment of $1,788.84 in 10 years. To get themoney for this payment, you will make 5 equal deposits, beginningtoday and for the following 4 quarters, in a bank that pays anominal interest rate of 8% with quarterly compounding.How large must each of the 5 payments be? Round your answer to thenearest cent.
    $