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Lambino Keino Mod 3 HW TVM

This document contains 7 questions regarding time value of money concepts such as simple vs compound interest, future and present value calculations, rates of return, perpetuities, and discounting cash flows. It provides examples such as calculating the interest earned over 10 years at 9% compound interest vs 9% simple interest, determining the annual rate of return on an investment that increased in value from PHP 10.3M to PHP 12.4M, and calculating the present value of a cash flow using discount rates of 10%, 18%, and 24%.

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21 views8 pages

Lambino Keino Mod 3 HW TVM

This document contains 7 questions regarding time value of money concepts such as simple vs compound interest, future and present value calculations, rates of return, perpetuities, and discounting cash flows. It provides examples such as calculating the interest earned over 10 years at 9% compound interest vs 9% simple interest, determining the annual rate of return on an investment that increased in value from PHP 10.3M to PHP 12.4M, and calculating the present value of a cash flow using discount rates of 10%, 18%, and 24%.

Uploaded by

loganramen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Lambino, Keino H.

12001614

1.)
BDO (Simple Interest Security Bank (Compound Interest
PV= 5,000 R= 9%
i = 9% PV= 5,000
t= 10yrs T= 10 YRS

I = PRT FV = P x (1+i)^t I = FV- PV


I = P5,000 x.09 x 10 yrs FV = 5,000 x (1.09)^10 I = 11,836.82 - 5,000
I = P4,500 FV = P11,836.82 I = P6,836.82

You would earn a total of P6,836.82 pesos if you invest in Security Bank compared to BDO which is only P4,500 whi

I1 = P1 x r x t P2 = P1+ I1
I1= 5000x.09x1 P2 = 5,000 + 450
I1 = P450 P2 = P5,450

I2 = P2 x r x t P3 = P2 +I2
I2 = 5,450 x.09 x 1 P3 = P5,450 + 490.5
I2 = P490.5 P3 = P5940.5
d to BDO which is only P4,500 which is a P2,336.82 difference
2.)

a.) PV = P1,000
i = 6%
t= 10 yrs

FV = P(1+i)^t
FV = 1,000(1.06)^10
FV = P1,790.85

b.) PV = P1,000
i = 9%
t = 10 yrs

FV = P(1+i)^t
FV = 1,000(1.09)^10
FV = P2,367.36

c.) PV = P1,000
i = 6%
t = 20 yrs

FV = P(1+i)^t
FV = 1,000(1.06)^20
FV = P3,207.14

d.) Interest earn in part c is not twice the amount of part a because if you get all the compounded interests for each year in ea
ed interests for each year in each parts, then you would have the result of their future values respectively
3.)
Annual Rate of Return = Final Value - Initial Value
Initial Value
= P12,377,500 - ₱10,311,500
₱10,311,500
= 20.04%

The annual rate of return on this scuplture is 20.04%

4.)
Perpetuity = Cash Flow
Interest Rate

= P120
5.70%

= P2,105.26

The price of the perpetuity is P2,105.26


5.)

Present Value = Future Value x 1


(1 + r)^n

If the discount rate is at 10%


Year Cash Flow Present Value
1 P1,200 1,090.91
2 730 603.31
3 965 725.02
4 1,590 1,085.99

If the discount rate is at 18%


Year Cash Flow Present Value
1 P1,200 1,016.95
2 730 524.27
3 965 587.33
4 1,590 820.1

If the discount rate is at 24%


Year Cash Flow Present Value
1 P1,200 967.74
2 730 474.77
3 965 506.13
4 1,590 672.53
6.)
Time value of money is a concept that states that the sum of one's money on hand today is much more valuable th

7.) Given the concept of time value of money where your cash on hand is worth more today than it is tomorrow, disco
day is much more valuable than the sum of money to be paid in the future

day than it is tomorrow, discounting plays a primary factor when determining the future values.

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