TIME VALUE OF MONEY PROBLEM SET

Answer these questions using either Excel or a Financial Calculator. In either case, I am looking for the formulas or keystrokes you used. If you use Excel, upload the Excel file in spreadsheet format below. If you used a financial calculator, identify your keystrokes in a document along with the answers for each question, scan and upload below.

FUTURE VALUE

$1.$ My bank will pay $3\%$ interest per year, annual compounding, on deposits to my checking account. If I deposit $$1,000$ today, what will it be worth in one year?

$2.$ What will the same $$1,000$ deposit today be worth in $2$ years? The interest rate will remain the same for the whole period.

$3.3$ Years?

PRESENT VALUE

$4.$ You are just finishing up your junior year at College and have learned that your grandparents left you a $$10,000$ trust fund which you will inherit in full when you graduate from college in $1$ year. The rate of inflation is $3\%$ and you assume it will remain constant until your inheritance vests. What is the current purchasing power $($today$)$ of the fund you will inherit in a year $($present value$)?$

$5.$ Your younger sister is finishing high school and will get the same inheritance when they graduate from college four years from now. Assume the same rate of inflation remains in place for the entire four years, what is the purchasing power today of your sister$$s inheritance?

$6.$ You sign a forward contract to sell an office building at the end of five years for $$42,000,000.$ Your required rate of return on investments is $11\%.$ What is the present value of this forward sale?

FUTURE VALUE OF AN ANNUITY

$7.$ You are going to deposit $$15,000$ at the beginning of each year starting today, for $5$ years, assuming you invest in the stock market at a $9\%$ average annual return, what will this annuity be worth at the end of five years?

PRESENT VALUE OF AN ANNUITY

$8.$ You win the lottery and will receive $$10,000$ at the end of each year for the next $10$ years. What is the current lump sum spending power of this annuity if the rate of inflation will remain stable at $3\%.$

$9.$ Assuming you complete the investment plan in Q#$7$ above. What is the current purchasing power of the future value of that plan if inflation is $3\%($i$.$e$.$ Present Value$)?$

$10.$ The annual net operating income $($NOI$)$ from that office building you will sell in $5$ years $($Q #$6$ above$)$ is $$1,500,000$ each year for the next five years. What is the net present value $($NPV$)$ of this annuity at the $11\%$ discount rate?

NPV OF REAL ESTATE CASH FLOW

$11.$ What is the total NPV of the office building described in #$6$ and #$10$ above?

$12.$ You are looking at investing in a small warehouse building which is rented out on a triple net basis with the tenant responsible for paying all expenses on a long$-$term basis. The NOI will be $$225,000$ each year while you own it$.$ You intend to sell the warehouse at the end of $5$ years for $$5,000,000.$ Assuming a required rate of return of $9\%,$ what is the NPV $($Investment Value$)$ of the property?

$13.$ If you purchase the property above in # $12$ for $$3,500,000$ what is the internal rate of return $($IRR$)$ of this investment?

$14.$ You are thinking of investing in a multi$-$family property. The first year$$s NOI will be $$65,000.$ You expect this NOI to grow $3\%$ per year. You will sell the property at the end of year $5$ based on an $8\%$ cap rate on year $6$ NOI. Cost of sale will be $2\%.$ Your required rate of return is $11\%.$ What is the Investment Value of this property $($NPV$)?$

$15.$ If you are able to purchase the property above in #$14$ for $$700,000,$ what is your Internal Rate of Return?