Question

The purpose of this assignment is to solidify your understanding on the applications of the time value of money. The scores of this assignment will help in assessing the following learning goal of the course: “students successfully completing this course will be able to apply principles of time value of money to personal and corporate financial decisions.” Instructions: You are required to use a financial calculator or spreadsheet (Excel) to solve 10 problems (provided on page 3) on the applications of the time value of money. You are required to show the following 4 steps for each problem (sample questions and solutions are provided for guidance): (i) Develop the timeline (linear representation of the timing of cash flows) (ii) Identify the time value of money variable (PV, FV, PMT, N or Rate) which needs to be calculated in the question. (iii) Identify the values of the remaining four variables (PV, FV, PMT, N or Rate) from the question. Be sure to input positive or negative signs. (iv) Calculate the correct value of the variable identified in step (ii)

2. At what rate must $287.50 be compounded annually for it to grow to $572.86 in 8 years? Submit your answer as a percentage and round to two decimal places

Answer 1

2. At what rate must $287.50 be compounded annually for it to grow to $572.86 in 8 years? Submit your answer as a percentage and round to two decimal places

(i) Develop the timeline (linear representation of the timing of cash flows)

Year 0 Year 8

-287.50 +572.86

(ii) Identify the time value of money variable (PV, FV, PMT, N or Rate) which needs to be calculated in the question.

Rate

(iii) Identify the values of the remaining four variables (PV, FV, PMT, N or Rate) from the question. Be sure to input positive or negative signs.

PV=287.50, N=8, FV=572.86,PMT=0

(iv) Calculate the correct value of the variable identified in step (ii)

=RATE(8,0,-287.5,572.86)=9.00%