1. Explain in plain English the concept of time value of money using the process of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. Explain in plain English the concept of time value of money using the process of deriving the future value formula as it is indicated by the following equations. 1 2 Time j-2 j-1 3 4 Create an EXCEL that you will evaluate the growth of value from a year you choose to start to a year you choose to end. You define the value and the interest rate as well as the time interval. You need to define the values using the above four variations of the future value formula and as the last (5) the EXCEL formula for the FV. You need to define only the cells I specify with a green color and I will test your correctness by dragging these formulas to the area I define with blue color. j j+1 j+2 On page 33 you have a graphical scheme that relates present and future value within three year period and 6% discount rate; taking a $100 three years from now, which now it is $83.96. Use EXCEL and the above formulas in order to bring the $100 to $83.96. Section of HONOR students You need to define only the cells I specify with a green color and I will test your correctness by dragging these formulas to the area I define with blue color of%20finance%20with%20Excel%20(Benninga,%20Simon%20Mofkadi,%20Ta ew A Read aloud Add text Draw CHAPTER 2 The Time Value of Money 33 What this short discussion shows is that the present value is the inverse of the future value: Time 0 1 2 3 $100.00 PV= $100.00/(1+ = $83.96 6%)-3 FV = $83.96*(1+6%)3 = $100.00 Present Value of an Annuity Recall that an annuity is a series of equal periodic payments. The present value of an annuity tells you the value today of all the future payments on the annuity. The present value of an annuity of $X to be received at the end of years 1, 2, 3,..., N when the appropriate interest rate is r% is X X X X X + + ++ (1+r) (1+r)² (1+r)³ (1+r) Here's an example: Suppose you've been promised $100 at the end of each of the next 5 years. Assuming that you can get 6% at the bank, this promise is worth $421.24 today: 1 A B C PRESENT VALUE OF AN ANNUITY WITH FIVE ANNUAL PAYMENTS OF $100 EACH 2 Annual payment D 3 r, interest rate (discount rate) 100 6% 4 Payment at end of Present value of 5 Year year 6 1 100 7 2 100 payment 94.34 <=B6/(1+$B$3)^A6 89.00 <=B7/(1+$B$3)^A7 8 3 100 83.96 9 4 100 79.21 10 5 100 74.73 11 12 13 Present value of all payments Summing the present values 14 15 16 Using Excel's PV function Using Excel's NPV function 421.24 <=SUM(C6:C10) 421.24 <=PV(B3,5,-B2) 421.24 <=NPV(B3,B6:B10) Hig Rain to sto 1. Explain in plain English the concept of time value of money using the process of deriving the future value formula as it is indicated by the following equations. 1 2 Time j-2 j-1 3 4 Create an EXCEL that you will evaluate the growth of value from a year you choose to start to a year you choose to end. You define the value and the interest rate as well as the time interval. You need to define the values using the above four variations of the future value formula and as the last (5) the EXCEL formula for the FV. You need to define only the cells I specify with a green color and I will test your correctness by dragging these formulas to the area I define with blue color. j j+1 j+2 On page 33 you have a graphical scheme that relates present and future value within three year period and 6% discount rate; taking a $100 three years from now, which now it is $83.96. Use EXCEL and the above formulas in order to bring the $100 to $83.96. Section of HONOR students You need to define only the cells I specify with a green color and I will test your correctness by dragging these formulas to the area I define with blue color of%20finance%20with%20Excel%20(Benninga,%20Simon%20Mofkadi,%20Ta ew A Read aloud Add text Draw CHAPTER 2 The Time Value of Money 33 What this short discussion shows is that the present value is the inverse of the future value: Time 0 1 2 3 $100.00 PV= $100.00/(1+ = $83.96 6%)-3 FV = $83.96*(1+6%)3 = $100.00 Present Value of an Annuity Recall that an annuity is a series of equal periodic payments. The present value of an annuity tells you the value today of all the future payments on the annuity. The present value of an annuity of $X to be received at the end of years 1, 2, 3,..., N when the appropriate interest rate is r% is X X X X X + + ++ (1+r) (1+r)² (1+r)³ (1+r) Here's an example: Suppose you've been promised $100 at the end of each of the next 5 years. Assuming that you can get 6% at the bank, this promise is worth $421.24 today: 1 A B C PRESENT VALUE OF AN ANNUITY WITH FIVE ANNUAL PAYMENTS OF $100 EACH 2 Annual payment D 3 r, interest rate (discount rate) 100 6% 4 Payment at end of Present value of 5 Year year 6 1 100 7 2 100 payment 94.34 <=B6/(1+$B$3)^A6 89.00 <=B7/(1+$B$3)^A7 8 3 100 83.96 9 4 100 79.21 10 5 100 74.73 11 12 13 Present value of all payments Summing the present values 14 15 16 Using Excel's PV function Using Excel's NPV function 421.24 <=SUM(C6:C10) 421.24 <=PV(B3,5,-B2) 421.24 <=NPV(B3,B6:B10) Hig Rain to sto
Expert Answer:
Answer rating: 100% (QA)
ANSWER What Is the Time Value of Money TVM The time value of money TVM is the concept that a sum of money is worth more now than the same sum will be ... View the full answer
Related Book For
Applied Statistics For Public And Nonprofit Administration
ISBN: 9781285737232
9th Edition
Authors: Kenneth J. Meier, Jeffrey L. Brudney, John Bohte
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
5. (8 points) (Determining a hidden "dot product vector") Consider the problem where one is given black-box access to a function f: {0, 1}" {0, 1} such that f(x) = a-z, where a {0,1}" is unknown....
-
1. Repeat Exercise 11 for the consumer demand matrix 2. Given that find the production matrix when the consumer demand matrix is Suppose that a simplified economy consisting of the three sectors...
-
Develop a trend line for the demand for fertilizer in Problem 5-15, using any computer software.
-
(a) A spherical capacitor consists of two concentric conducting spheres of radii \(R\) and \(2 R\). If the two spheres carry charges of \(+q\) and \(-q\), what is the average energy density inside...
-
In recent years, Darnell Company purchased three machines. Because of heavy turnover in the accounting department, a different accountant was in charge of selecting the depreciation method for each...
-
For this exercise, instead of using the values in the challenge, ask the user for the number of shares, the share price, and the percent commission.For this exercise, instead of using the values in...
-
When possible, compute the truth values of the simple components in the following compound propositions. If no truth value can be computed, write a question mark (?) under the letter or letters with...
-
Give a summary of the podcast or lecture you selected. You should quickly discuss who was interviewed or who spoke, the subjects they discussed, and some of the suggestions they made. Try to keep...
-
How do cultural differences influence decision-making processes and preferences across diverse populations?
-
The prosecutor tried to convince the jury that the defendant was guilty because he owned a hammer that produced an impression similar to that found at the crime scene. As the defendants attorney, how...
-
A company with a beta of 2.2 pays dividends of $3.50 per share. Other companies in the market earn a return of 7%, while risk-free government bonds pay 2% annually. If the company's stock price is...
-
One of your colleagues Lily has learned that you are taking Managerial Economics at Lewis. Lily has never learned economics and is curious about Managerial Economics. Explain to Lily what Managerial...
-
How does cultural diversity within teams impact group cohesion and productivity, and what strategies can be implemented to harness the strengths of diverse perspectives?
-
Indirect addressing is one of the most powerful addressing modes that a microcontroller can have. It allows us to work with a block of data in the memory of the microcontroller. Write a code example...
-
The electric field due to a line charge is given by where l is a constant. Show that E is solenoidal. Show that it is also conservative. E =
-
Arnold Ziffel, the Marathon County Agricultural Extension Agent, knows that wheat yields in Marathon County this year have a mean of 25 bushels to the acre with a standard deviation of 10. Wheat...
-
Greg Gouge, analyst for the Wisconsin Department of Taxation, is concerned about beer consumption in the state. (The state taxes beer so a drop in consumption will reduce tax revenues.) The dependent...
-
The Bureau of Administration is concerned with high levels of employee absenteeism. Last year, the average employee missed 12.8 workdays. This year, there is an experimental program in which the...
-
How many oxygen atoms are bonded to the carbon of the carbonyl of an ester functional group? (a) none (b) one (c) two (d) three
-
Which would you expect to be more viscousa polymer made of long molecular strands or a polymer made of short molecular stands? Why? (a) long strands, because they tend to tangle among themselves (b)...
-
Explain why caprylic acid, CH 3 (CH 2 ) 6 COOH, dissolves in a 5, aqueous solution of sodium hydroxide but caprylaldehyde, CH 3 (CH 2 ) 6 CHO, does not dissolve. (a) With two oxygens, the caprylic...
Study smarter with the SolutionInn App