Question

**Mastery Problem: Time Value of Money**

**Time value of money**

Due to both interest earnings and the fact that money put to good use should generate additional funds above and beyond the original investment, money tomorrow will be worth less than money today.

Simple interest

Ringer Co., a company that you regularly do business with, gives
you a $18,000 note. The note is due in three years and pays simple
interest of 5% annually. How much will Ringer pay you at the end of
that term? Note: Enter the interest rate as a decimal. (i.e. 15%
would be entered as .15)

Principal | + | ( Principal | x | Rate | x | Time | ) | = | Total | |

$ | + | ($ | x | x | years | ) | = | $ |

**Compound interest**

With compound interest, the interest is added to principal in the
calculation of interest in future periods. This addition of
interest to the principal is called compounding. This differs from
simple interest, in which interest is computed based upon only the
principal. The frequency with which interest is compounded per year
will dictate how many interest computations are required (i.e.
annually is once, semi-annually is twice, and quarterly is four
times).

Imagine that Ringer Co., fearing that you wouldn’t take its deal, decides instead to offer you compound interest on the same $18,000 note. How much will Ringer pay you at the end of three years if interest is compounded annually at a rate of 5%? If required, round your answers to the nearest cent.

Principal | Annual Amount of | Accumulated Amount at | |

Amount at | Interest (Principal at | End of Year (Principal at | |

Beginning of | Beginning of Year x | Beginning of Year + Annual | |

Year | Year | 5%) | Amount of Interest) |

1 | $18,000 | $900 | $18,900 |

2 | $18,900 | $ | $ |

3 | $ | $ | $ |

If you were given the choice to receive more or less compounding periods, which would you choose in order to maximize your monetary situation? _____________

Answer #1

Note

If you have any queries kindly post a comment, i will solve it earliest.

If you satisfied with my answer, kindly give a thumbs up, it will help to encourage me.

?(Compound interest with? non-annual periods)??Calculate the
amount of money that will be in each of the following accounts at
the end of the given deposit? period:
Account Holder
Amount Deposited
Annual
Interest Rate
Compounding
Periods Per Year (M)
Compounding
Periods (Years)
Theodore Logan III
$1,000
18%
3
10
Vernell Coles
$96,000
10%
2
3
Tina Elliot
$9,000
12%
4
4
Wayne Robinson
$121,000
12%
12
3
Eunice Chung
$30,000
18%
1
4
Kelly Cravens
$15,000
12%
6
3
The amount...

(Compound interest with non-annual periods) Calculate the
amount of money that will be in each of the following accounts at
the end of the given deposit period:
The amount of money in Theodore Logan III's account at the end
of 10 years will be?
The amount of money in Vernell Coles account at the end of 3
years will be?
The amount of money in Tina Elliot account at the end of 5
years will be?
The amount of money...

Directions: Simple Interest. Calculate the amount of money you
will have in each account after 5 years, assuming that the account
earns simple interest.
1.) You deposit $1500 in an account with an annual
interest rate of 4%?
Direction: Compound Interest. Use the compound interest formula
to compute the balance in each account after the stated period of
time, assuming that interest is compounded annually.
1.) $3,000 is invested at a APR of 1.8% for 12
years.?

QUESTION 2-TIME VALUE OF MONEY
Judy Dench took up the government offer on the
“Special Early Retirement Programme” and received a lump sum
payment of J$3.5M. After clearing her mortgage and credit card
debts she has J$1.5M remaining. She saw an advertisement recently
in the local newspaper where JMMB was offering three investments
offer to the public as follow:
Investment Product
Interest Rate
Term
Conditions
Investment A
16%
5 years
Interest is compounded annually. Principal & Interest is
paid at...

Compound interest is computed on the principal and any interest
earned that has not been withdrawn.
Compound interest is computed on the
principal amount plus paid interest.
principal amount plus accrued interest.
principal amount plus earned interest left on deposit.
principal amount only.
_____
Which of the following is false?
Simple interest is generally applicable to long-term
situations.
For the investor, compound interest is more desirable than
simple interest.
Simple interest uses the initial principal to compute interest
in each...

Maths of finance
This task assesses the following learning
outcomes:
Time value for money and the rate of return
Assess the simple interest and compound interest
Net Present value in Capital Budgeting (Internal rate of
return, Payback period)
Annuities (PV, FV, Growth Annuities, types of Annuities)
Perpetuities (PV, Growth Perpetuities)
2. The bank offers you some options, however, you can't withdraw
it for 5 years:
a. 8% simple interest
b. 6% compounded semiannual
c. 5.5% compounded monthly Which is the...

Compound interest with non-annual periods) Calculate the
amount of money that will be in EACH of the following accounts at
the end of the given deposit period:
Account Holder
Amount
Deposited
Annual
Interest Rate
Compounding
Periods Per Year (M)
Compounding
Periods (Years)
Theodore Logan III
$
1,000
1212
%
11
55
Vernell Coles
94,000
1212
66
33
Tina Elliot
7,000
88
22
44
Wayne Robinson
120,000
1212
1212
33
Eunice Chung
30 ,000
1616
44
44
Kelly Cravens
17,000
1212...

elated to Checkpoint 5.3) (Compound interest with non-annual
periods) Calculate the amount of money that will be in each of the
following accounts at the end of the given deposit period:
Account Holder
Amount
Deposited
Annual
Interest Rate
Compounding
Periods Per Year (M)
Compounding
Periods (Years)
Theodore Logan III
$
1,100
12
%
3
5
Vernell Coles
96,000
10
2
2
Tina Elliot
7,000
8
12
5
Wayne Robinson
121,000
12
4
5
Eunice Chung
30,000
12
6
4
Kelly...

If a capital sum of money P is placed on compound interest at a
rate I compounded annually, show that the future sum of the F,
after the number of interest periods n could be expressed as:
If a sum of £25,000 is invested at the interest rate of 8
percent per year for 10 years. How much will the investor receive
at the end of investment.
To receive £10,000 in the future 20 years from now, how much
should...

I want to put some money in the bank for 5 years. My bank
provides simple interest at 3.25% per year, but I cannot determine
if this is a better deal than a competing bank offering 3.25%
compound interest without knowing the compounding period.
Choose the correct statement
A. The statement makes sense because if the compounding period
is only one year then each year the compounded account will earn
the same amount as the simple account.
B. The statement...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 6 minutes ago

asked 6 minutes ago

asked 11 minutes ago

asked 20 minutes ago

asked 20 minutes ago

asked 45 minutes ago

asked 46 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago