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 4-5 page (excluding title page and references) paper by responding to the following tasks:
1) In two to three paragraphs, explain why the concept of present value is so important for corporate finance and is often the very first topic taught in any finance class.
Do not focus your answer on explaining what present value is, instead focus on some specific reasons why you think it is important and why it is taught first in corporate finance classes before other topics are introduced.
2) Calculate the future value of the following:
a. $49,298 if invested for five years at a 7% interest rate
b. $79,119 if invested for three years at a 4% interest rate
c. $69,124 if invested for seven years at an 2% interest rate
d. $39,929 if invested for ten years with a 0.9% interest rate
3) Calculate the present value of the following:
a. $105,126 to be received three years from now with a 4% Interest rate
b. $228,231 to be received five years from now with a 5% interest rate
c. $192,000 to received two years from now with a 12% interest rate
d. $998,111 to be received eight years from now with a 1% interest rate.
4) Suppose you are to receive a stream of annual payments (also called an "annuity") of $72,394 every year for three years starting this year. The interest rate is 4%. What is the present value of these three payments?
5) Suppose you are to receive a payment of $189,299 every year for three years. You are depositing these payments in a bank account that pays 2% interest. Given these three payments and this interest rate, how much will be in your bank account in three years?
6) What do you perceive you have learnt in Module 2 Case Assignment? Please provide your evaluation of the Module 2 Case Assignment in brief.
NOTE: Please note that your report/assignment will not be accepted without proper citations and references. You must use the sources from the background material together with the sources you find your own.
Case Assignment Expectations:
In Module 1 Case Assignment, you are expected to:
?Describe the purpose of the paper and conclusion. An introduction and conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
?Answer the case assignment question clearly and provide necessary details. Also please review Tips for Good Writing to write a well structured paper.
?Provide a quality argument; that is, no poor sentence structure, no spelling and grammar mistakes or run-on sentences.
?Provide citations to support your argument and references on a separate page (All the sources that you listed in the references section must be cited in the paper). Please use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
?Type and double space the paper.
? The following criteria will also be used to assess your paper:
>Precision: Does the paper address the question(s) or task(s)?
>Breadth: Is the full breadth of the subject, i.e., all the keys to the assignment, addressed?
>Depth: Does the paper/report address all elements of the topic in sufficient depth? Does it include and apply the background readings and other background resources? Are they included as references?
>Critical thinking: Are the concepts of this module applied accurately, logically, and relevantly?
>Organization: Is the paper organized in a coherent and systematic manner? Are headings included in all papers greater than 2 pages?
>Clarity: Is the writing clear and the concepts articulated properly? Are paraphrasing and synthesis of concepts the primary means of response to the questions, or are thoughts conveyed through excessive use of quotations?
Finally, in the grading of your assignment, you will be assessed on the following items:
1) For the essay portion of this assignment, you should provide a direct answer to the assignment question and support your answer with solid references.
2) For the computational portions of this assignment, you should show your work and demonstrate that you understand the steps involved in your computations. Your final grade will depend not only on your final answer but also how well you illustrate the steps you took to reach your final answer.
Time Value of Money