FIN 501 Module 2 Case
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FIN 501 Module 2 Case
Time Value of Money
As a financial manager you will often have to compare cash payments which occur at different dates. To make optimal decisions, you must understand the relationship between a dollar today [present value] and a dollar in the future [future value].
Future value is the amount to which an investment will grow after earning interest. Interest can be of two types: i) simple interest, and ii) compound interest.
In a word document, upload your answers to the following questions below. Very importantly - show all your work. If your final answer is wrong, you can still receive partial credit if you show all of your steps and demonstrate a good understanding of the time value of money.
To complete Module 2 Case Assignment, please read the information in the background material, look for more information, and then write a 4 page (excluding title page and references) report for your professor by responding to the following questions/tasks:
1) How would you define time value of money in your own words? Please provide a brief definition of time value of money in your own words.
2) To what extent is it important for financial managers to understand the concept of time value of money? Why? Please explain your reasoning in two to three paragraphs.
If you do not know how to use calculator, please use the tables to answer question 3, 4, 5, and 6.
3) Calculate the future value of the followings:
a. $150,537.19 if invested for seven years at a 5% interest rate
b. $237,891.22 if invested for eight years at a 3% interest rate
c. $320,891.12 if invested for ten years at an 11% interest rate
d. $520,520.22 if invested for thirteen years with a 13% interest rate
4) Calculate the present value of the followings:
a. $562,126.17 to be received seven years from now with a 5% interest rate
b. $225,003.21 to be received six years from now with a 6% interest rate
c. $321,567.35 to received five years from now with an 18% interest rate
d. $63,000.05 to be received twelve years from now with a 5% interest rate
5) Suppose you are to receive a stream of annual payments (also called an "annuity") of $325,891.12 every year for twelve years starting at the end of this year. The interest rate is 6%. What is the present value of these twelve payments?
6) Suppose you are to receive a payment of $437,891.24 at the end of each year for five years. You are depositing these payments in a bank account that pays 15% interest. Given these five payments and this interest rate, how much will be in your bank account in five years?
7) What do you perceive you have learnt in Module 2 Case Assignment? Which of the following learning objectives do you feel you have mastered?
?Make basic calculations concerning present and future value
?Understand and discuss the concepts of present and future value
Please provide your evaluation of the Module 2 Case Assignment in brief.