Finance

Finance

Assignment 1

Q 1)

Timeline is normally used in the calculation of future and present values of the installment. Further the upper part of the time line comprises of cash outflows that are needed be paid by the individual, while the down layer of time line represents the cash inflows which is represented by the positive sign, on the other hand, cash outflows are represented by negative sign (Warren et a, l2011)

Q 2)

There is a direct relationship between present and future values, for instance, amount invested by the individual is his present value and the amount he will receive at the end of period is currently known as future value.

Q 3)

Present value will be decreased if interest rate increases, similarly present value will increase if interest rate decreases. In more simple words, there exists an inverse relationship amid interest rates and present values. When the expected interest rates increase the present values decrease, due to the fact that future values are discounted at a high rate to become smaller present values. Similarly, when expected interest rates decrease the present values increase, due to the fact that future values are discounted at a lower rate.

Q4) Data

Fv =?

Amount =150

Interest = 7, 6, 8 percent

N= 8

Solution

Fv= 150 × (1 + 0.07)8

= 257.7279

Fv= 150 × (1 + 0.06)8

239.0772

Fv= 150 × (1 + 0.08)8

=277.6395

Q 5) Data

Amount = $350

Fv at year 3 =?

Interest = 8% in year1, 7 percent in year 2, 5 percent in year 3

Solution

Fv = 350*(1.08) (1.07) (1.05)

= 424.683

Q6) Data

PV =?

Amount = 850

Interest = 12, 11, 13

Years = 10

Solution

PV = 850/ (1+0.12)10

= 273.6773

PV = 850/ (1+0.11)10

= 299.3568

PV = 850/ (1+0.13)10

= 250.4001

Q7) Data

PV = 5000

Fv= 9500

Rate of return =?

N= 5, 4, 6

Solution

FVN = PV × (1 + i)N

(1 + i)5 = 9500/5000

(1 + i)5 = ...