Required Reading Les Livingstone, Finance made easy, (3nd


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Required Reading Les Livingstone, Finance made easy, (3nd edition, 2013), available as a modestly priced paperback from Amazon.com. Chapters 1 and 2. Assignment: Answer the problems in the attached file named “Time Value of Money Problems.” Submit all answers in a single Excel file. Be sure to show that you understand the concepts. All calculations should be shown, step by step. All answers should be thoroughly explained. If there are excel functions available, you should also use those functions to solve the problems, in addition to the step by step process. Additional consideration will be given to application of these concepts to your own problems. That is, make up your own problems that require use of the tools to solve. ************************ Important topics this week are: Time Value of Money. Risk and Rates of Return. A Power Point slide presentation that fully explains and illustrates this important subject is in the attached file. Also attached are PowerPoint presentations on: Present Value (also known as Discounted Cash Flow, or Time Value of Money). This presentation will explain present value, and show you how to use the Excel financial functions, which will quickly and easily calculate rates of interest, growth rates, and present and future values of cash flows. For your information, the rate of interest is the same thing as the rate of growth, because the rate of interest is the rate at which money grows. To find the rate of interest (or growth) I recommend using the Excel RATE function for a quick and easy solution. Another tip: the “rule of 72” is a handy rule of thumb. It says that any number that is growing at the rate i will double in approximately n periods, and i times n = 72 (approximately). For example: At a 6% rate of interest, $100 will double in 72/6 = 12 periods (because 6 x 12 = 72). In 8 periods, at what rate of interest will $200 double? Answer: at 72/8 = 9% per period (because 8 x 9 = 72). Reminder In all your assignments, make sure that you: 1. Show all your calculations. 2. Use Excel in addition to your computations for item 1. 3. Describe and justify each assumption you have made. 4. Explain, support and justify every statement you make. 5. Support your conclusions with evidence (such as facts and statistics from reliable sources, quotes from the readings, or a well-reasoned logical argument). Examples from your own experience are also helpful. Please bear in mind that analyses and conclusions are only as good as the data and assumptions that they are based on; So ALWAYS support all of your numbers or calculations with reasoning and explanations, and be sure to provide sources for all of your data. Time Value of Money Prob .xls Problem Assignment: Time Value of Money 1 If you deposit $15,000 today and earn 8% annual interest, how much will you have in 9 years? Answer: 2 Tiffany will receive a graduation gift of $10,000 from her parents in 3 years. If the discount rate is 7%, what is this gift worth today? Answer: 3 What is the present value of a 20-year ordinary annuity of $30,000 using a 6% discount rate? Answer: 4 You deposit $5,000 in an account that pays 8% interest per annum. How long will it take to double your money? Answer: 5 The Johnsons have $60,000 to use as a down-payment on a house, and they want to borrow $240,000 from the bank. The current mortgage interest rate is 5%. If they make equal monthly payments for 30 years, how much will the monthly payment be? Answer: 6 Tim paid $250 per month into his 401K retirement plan. After 30 years, he had accumulated $500,000. What average annual rate of interest had he earned over the 30 years? Answer: 7 Charlotte’s firm had sales of $525,000 in the year 2001. By 2012, sales had increased to $1,200,000. What was the average annual rate of increase? Answer: 8 Alan had saved up $500,000. How much more must he save each year over the next 10 years in order to have a total of $2 million? Alan earns 5% int

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