Ac3059 | Calculating The Present Assessment Answer

Questions:

1.What is the future value of $500 a year for 9 years compounded annually at 10%? What is the future value of $900 for nine years compounded annually at 10%?

2.After placing $13,000 in a savings account paying annual compound interest of 3%, Leona will accumulate what amount if she leaves the money in the bank for 4 years?

3.Alex Karez has taken out a loan of $180,000 with an annual rate of 10% compounded monthly to pay off hospital bills from his wife’s illness. If the most Alex can afford to pay is $3,500 a month, how long will it take to pay off the loan? How long will it take to pay off the loan if he can pay $4,000 each month? Use five decimal places for the monthly percentage rate in your calculations. If Alex can pay $3,500 a month, how many years will it take to pay off the loan?

4.To pay for your education, you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 5% compounded monthly, how much are your monthly student loan payments?
5.You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
What is the present value of investments A, B, and C if the appropriate discount rate is 10%?

Answers:

1. Calculating the future value:

Particulars

Value

PMT

 $ 500

Time

                 9

Rate

10%

Future Value

500 * ((((1 + 10%)^9) - 1) / 10%)

Future Value

 $ 6,789.74

 

Particulars

Value

PMT

 $ 900

Time

                  9

Rate

10%

Future Value

900 * ((((1 + 10%)^9) - 1) / 10%)

Future Value

 $ 12,221.53

2. Calculating the amount that will be accumulated by Leona:

Particulars

Value

Investment amount

 $ 13,000

Interest rate

3%

Time

                  4

Amount

  $ 14,631.61

3 Calculating values for Alex Karez:

Particulars

Value

Loan amount

 $        180,000

Annual rate

10%

PMT per month

 $            3,500

Months

                      19

 

Particulars

Value

Loan amount

 $        180,000

Annual rate

10%

PMT per month

 $            4,000

Months

                      18


Alex will take 1.7 years for paying off the loan with a monthly payment of $3,500.

4. Calculating the monthly student loan payments:

Particulars

Value

Loan Amount

 $ 28,000

Interest rate

0.42%

Time

                 156

Monthly payments

$ 244.46

5. Calculating the Present Value of Investments: 

Discounting rate

10%

 

 

 

 

 

End of Year

A

B

C

Dis-rate

Cash Flow A

Cash Flow B

Cash Flow C

Year 1

 $1,000

 $1,000

$5,000

 0.91

 $ 909

 $ 909

 $ 4,545

Year 2

 $2,000

 $1,000

 $5,000

 0.83

 $ 1,653

 $ 826

 $ 4,132

Year 3

 $3,000

 $1,000

 $(5,000)

 0.75

 $ 2,254

 $ 751

 $ (3,757)

Year 4

 $(4,000)

 $1,000

 $(5,000)

 0.68

 $ (2,732)

 $ 683

 $ (3,415)

Year 5

 $4,000

 $3,000

 $15,000

 0.62

 $ 2,484

 $ 1,863

 $ 9,314

Present Value

$ 4,567.56

$ 5,032.63

$ 10,819.86

Bibliography:

Bekaert, G., & Hodrick, R. (2017). International financial management. Cambridge University Press.

Burtonshaw-Gunn, S. A. (2017). Risk and financial management in construction. Routledge.


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