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Assignment 2 FIN

This document contains the solutions to several time value of money problems from a textbook. It solves for the future and present value of lump sums, calculates the future value of an annuity, constructs an amortization schedule for a loan, and computes an effective annual rate. The problems cover topics like compound interest, ordinary annuities, and amortized loans. Formulas are provided and calculations are shown step-by-step to arrive at the final answers.

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Trang Quynh
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100 views3 pages

Assignment 2 FIN

This document contains the solutions to several time value of money problems from a textbook. It solves for the future and present value of lump sums, calculates the future value of an annuity, constructs an amortization schedule for a loan, and computes an effective annual rate. The problems cover topics like compound interest, ordinary annuities, and amortized loans. Formulas are provided and calculations are shown step-by-step to arrive at the final answers.

Uploaded by

Trang Quynh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Tran Thi Quynh Trang – 1617892

FIN 3331

Dr. Anand Krishnamoorthy

July 06th, 2023, VietNam time

HOMEWORK ASSIGNMENT 2
Textbook Problem:

Problem 5-1: If you deposit $2,000 in a bank account that pays 6% interest annually,
how much will be in your account after 5 years?

Solve:

FV = PV * (1+I) N = $2,000*(1+6%)5 = $2,676.45

Problem 5-2: What is the present value of a security that will pay $29,000 in 20 years if
securities of equal risk pay 5% annually?

Solve:

FV $ 29,000
PV = N = 20 = $10,929.80
(1+ I ) (1+5 %)

Problem 5-6: What’s the future value of a 5%, 5-year ordinary annuity that pays $800
each year? If this was an annuity due, what would its future value be?

Solve:

( 1+ I ) N −1 ( 1+ 5 % )5−1
FVAN = FVA5 = PMT [ ] = $800 * [ ] = $4,420.51
I 5%

Additional Problems:
Problem 1:

You take out an amortized loan for $10,000. The loan is to be paid in equal installments
at the end of each of the next 5 years. The interest rate is 8%. Construct an amortization
schedule.

Solve:

We have:

$ 10,000∗8 %
PMT = −5 = $2,504.56
1− (1+ 8 % )

*Repayment of Principal = Payment – Interest

*Ending Balance = Beginning Amount – Repayment of Principal

Year Beginning Payment Interest Repayment Ending


Amount of Principal Balance

1 10,000 2,504.56 800 1704.56 8295.44

2 8295.44 2,504.56 663.64 1840.92 6454.52

3 6454.52 2,504.56 516.36 1988.20 4466.32

4 4466.32 2,504.56 357.31 2147.25 2319.06

5 2319.06 2,504.56 185.52 2319.04 0.00

Problem 2:

A. Calculate the PV of $100 due in 5 years compounded daily at 12%.


B. Calculate the FV of $1000 due in 3 years at 6% compounded quarterly.
C. Calculate the FVA of $300 due at the end of each of the next 5 years at 4%.
D. Calculate the PVA of $300 due at the end of each of the next 5 years at 4%.

Solve:

$ 100
FV 5∗365
A. PV = N = 12 % = $54.89
(1+ I ) (1+ )
365
6 % 3*4
B. FV12 = PV * (1+I) N = $1000 * (1+ ) = $1,195.62
4
( 1+ I ) N −1 ( 1+ 4 % )5−1
C. FVA5 = PMT [ ] = $300*[ ] = $1,624.90
I 4%
1 1
D. PVA5 = PMT [1 – ( 1+ I ) ] = 300*[1 – ( 1+ 4 % )5 ] = $1,335.55
N

I 4%

Problem 3: Compute the EAR of 10% compounded daily.


Solve:

I ( NOM ) M 10 % 365
EAR = [1+ ] – 1 = [1+ ] – 1 = 0.1051 = 10.52%
M 365

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