Your assignment for this week is to answer the following questions based on the scenario below. Please be sure to show your work. There are eight questions in this assignment. The assignment is worth 110 points and all questions are equally weighted.

You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions. You must show your work. (Identify N, I/Y, PV, PMT, and FV).

1. Whats the future value of $100 after 3 years if it earns 8%, annual compounding?
2. Whats the present value of $100 to be received in 3 years if the interest rate is 8%, annually compounding?
3. What annual interest rate would cause $1,000 to grow to $2,000 in 8 years?
4. If a companys sales are growing at a rate of 7.2% annually, how long will it take sales to double?
5. What is the present value of a 6-year, $100 ordinary annuity if the annual interest rate is 4%?
6. What is the EAR corresponding to a nominal rate of 8% compounded semiannually? Compounded quarterly? Compounded daily?
7. Your client is 40 years old, and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $5,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 9% in the future. If she follows your advice, how much money will she have at 65?
8. You have $50,000 to put as a down payment on a new house that costs $350,000, and you have been quoted the following terms: 5% Annual Percentage Rate (APR) for 30 years. If you decide to purchase this home, what will your monthly payment be? Additionally, over the life of the loan, what would your total interest expense be?

Tips for Success

• Be sure to set a sufficient number of decimal places.
• Clear TVM before each question.
• Remember that turning off your calculator does not erase items in memory.
• Read the problem carefully, identify what is known and what is being asked of you.
• Draw a timeline to clarify the problem.
• Remember to look for N, I/Y, Present Value, Payment or the Future Value.
• Remember to keep your cash flow signs consistent (inflows vs. outflows).
• Know that ERROR 5 is what you see on the calculator when you have forgotten your cash flow signs.
• Always remember to Clear Time Value of money before starting a problem.
• If you have used the cash flow keys, remember to clear them before starting another cash flow problem.
• If you have a question, please let your instructor know.