before class starts - emory university 2014/210.11.11.8.30.pdf · before class starts ... bus210...

Before Class starts….(make sure your name is on all submissions)

Last Homework due 12/1(MW) or 12/2(TH) before class.

Help session Sunday 11/23 or 11/30 1:00-3:30pm in GBS130

Final Exam is Saturday December 13 9:00-Noon; Conflicts? Contact me ASAP!

What questions do you have for me?

– TA Office Hours 5-6 T&R in W520 & Accounting Lab Hours on http://bus.emory.edu/scrosso

– File cabinet downstairs contains your mail folder. Your homework and exams returned there.

BUS210

The Time Value of MoneyAppendix A

Key Questions:

Future Value v. Present Value?n= number of periods?r=effective or market interest rate?Single payment or Ordinary annuity (multiple payments)?Interest bearing or Noninterest bearing?

Draw a Timeline:

Future Value of a Single Sum EA-1

If $150 were invested today, how large a sum could be withdrawn at the end of the following time periods?

Compound Interest Rates 5 years 10 years 15 years

5%

10%

15%

Present Value of a Single Sum EA-2

Compute the present value of $10,000 received at the end of the following time periods at the following discount rates.

Compound Interest Rates 5 years 10 years 15 years

5%

10%

15%

Future Value of an Ordinary Annuity EA-3

If $150 were invested at the end of each year over the following time periods, how large a sum could be withdrawn at the end of the final time period?

Compound Interest Rates 5 years 10 years 15 years

5%

10%

15%

Present Value of an Ordinary Annuity EA-5

Compute the present value of $10,000 received at the end of each year over the following time periods at the following discount rates.

Compound Interest Rates 5 years 10 years 15 years

5%

10%

15%

Present Value of different payment patterns EA-7

Compute the present value of the payment patterns provided below, given an 8% discount rate.

a. $50 at the end of year 2, $100 at the end of year 5, and $80 at the end of year 8.

Present Value of different payment patterns EA-7

Compute the present value of the payment patterns provided below, given an 8% discount rate.

b.$100 at the end of years 1,2,3,4; and $100 at the end of year 8.

Present Value of different payment patterns EA-7

Compute the present value of the payment patterns provided below, given an 8% discount rate.

c. $60 at the end of years 5,6,7,8; and $100 at the end of year 10.

Present Value of different payment patterns EA-7

Compute the present value of the payment patterns provided below, given an 8% discount rate.

d. $90 at the end of years 7,8,9.

Highest Present Value EA-11Congrats! You have just won the lottery. The lottery board offers you 3 different options for collecting your winnings:

1. Payments of $500,000 at the end of each year for 20 years.

Assume that all earnings can be invested at 10% annual rate. Which option should you consider and why?

Highest Present Value EA-11

Congrats! You have just won the lottery. The lottery board offers you 3 different options for collecting your winnings:

2. Lump-sum payment of $4,500,000 today.

Assume that all earnings can be invested at 10% annual rate. Which option should you consider and why?

Highest Present Value EA-11

Congrats! You have just won the lottery. The lottery board offers you 3 different options for collecting your winnings:

3. Lump-sum of a $1,000,000 today and payments of $2,100,000 at the end of Years 5, 6, and 7.

Assume that all earnings can be invested at 10% annual rate. Which option should you consider and why?

Future and Present Values EA-9

Ben found $25,000 and decided to invest it. He believes he can earn 10% (compounded annually) on his investment for the first 4 years, 12% for the following 3 years, and 15% for the following 5 years.

a. How much money will Ben have at the end of 4 years, 7 years, and 12 years?

Future and Present Values EA-9Ben found $25,000 and decided to invest it. He believes he can earn 10% (compounded annually) on his investment for the first 4 years, 12% for the following 3 years, and 15% for the following 5 years.

b. If someone offered to pay him $36,000 at the end of 4 years for the $25,000, should he accept? Why or why not?