Module 5 Critical Thinking Assignment
Module 5 Critical Thinking Assignment
The Time Value of Money (100 Points)
Complete the following problems. You will likely use a spreadsheet for this assignment but you may choose to type up your answers in a Word document. In either case, be sure to show your work.
 Problem 51: Compound Interest
 Problem 52: Present Value
 Problem 53: Future Value
 Problem 54: PresentValue Comparison
 Problem 55: Compound Annuity
 Problem 56: Compound Interest with Nonannual Periods
Problem 51: Compound Interest
To what amount will the following SAR investments accumulate?
Solution
A)  
Investment  4,500 
Years  5 
Percent  7% 
FV =  
B) 

Investment  9,200 
Years  3 
Percent  9% 
FV =  
C) 

Investment  17,050 
Years  8 
Percent  11% 
FV =  
D) 

Investment  925 
Years  15 
Percent  7% 
FV = 
Problem 52: Present Value
What is the present value of the following future amounts?
A)  
FV  3,550 
Years  5 
Percent  13% 
PV =  
B) 

FV  250 
Years  3 
Percent  8% 
PV =  
C) 

FV  2,700 
Years  5 
Percent  9% 
PV =  
D) 

FV  3,025 
Years  7 
Percent  15% 
PV = 
Problem 53: Future Value
Sales of a new business book were 15,500 copies this year and were expected to increase by 14 percent per year. What are expected sales during each of the next 3 years?
DATA  
Copies  15,500 
Percent  13.5% 
Years  9 
Solution
FV for 1st yr =  
FV for 2nd yr =  
FV for 3rd yr = 
Problem 54: PresentValue Comparison
Assuming you can earn 5 percent on your money, which of the following offers should you choose? SAR 950 today; SAR 11,000 in 13 years; or SAR 24,000 in 21 years?
Solution
Percent  5%  
Years  Amount  PV  
A  Today  950  
B  13  12,500  
C  21  24,000  
Which offer should you choose and why?  

Problem 55: Compound Annuity
What is the accumulated sum of each of the following streams of payments?
 SAR 1,100 a year for 5 years compounded annually at 7 percent
 SAR 1,350 a year for 4 years compounded annually at 10 percent
 SAR 225 a year for 3 years compounded annually at 9 percent
 SAR 400 a year for 7 years compounded annually at 3 percent
Solution
A)  
Pymt  1,100 
Years  5 
Percent  7% 
FV =  
B) 

Pymt  1,350 
Years  3.25 
Percent  10% 
FV =  
C) 

Pymt  225 
Years  3 
Percent  9% 
FV =  
D) 

Pymt  400 
Years  7 
Percent  3% 
FV = 
Problem 56: Compound Interest with Nonannual Periods
 Calculate the future sum of SAR 5,500, given that the money will be held in the bank for 4 years at an annual interest rate of 3 percent.
 Recalculate part a. assuming the interest rate is (1) an APR of 4 percent compounded semiannually and (2) an APR of 8 percent compounded bimonthly.
 Recalculate parts a. and b. for an APR of 9 percent
 Recalculate part a. using a time horizon of 14 years (the APR is still 3 percent).
 With respect to the effect of changes in the stated interest rate and holding periods on future sums in parts c. and d., what conclusions do you draw when you compare these figures with the answers found in parts a. and b.?
Solution
A)  
PV  5,500  
Years  4  
Percent  3%  
FV =  
B) 

Semiannual  4  
Bimonthly  8  
C) 

Rate  9%  
Annual  
Semiannual  
Bimonthly  
D) 

Years  14  
Annual  
E) 


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