Homework Assignment 1 (10 marks)- Time Value of Money (individual work)
- FrankZancais considering three different investments that his broker has offered to him. The different cash flows are as follows: (5 marks)
|
End of Year
|
A
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B
|
C
|
|
1
|
300
|
400
|
|
|
2
|
300
|
|
|
|
3
|
300
|
|
|
|
4
|
300
|
300
|
600
|
|
5
|
300
|
|
|
|
6
|
300
|
|
|
|
7
|
300
|
|
|
|
8
|
300
|
600
|
|
BecauseFrankhas enough savings for only one investment, his broker has proposed the third alternative to be, according to his expertise, the best in town. However, Frank questions his broker and wants to eliminate the present value of each investment. Assuming a 15% discount rate, what isFrank`s best alternative?
- StanfordSimmons, who recently sold his Porsche, placed $10,000 in saving account paying annual compounded interest rate of 6%. (5 Marks)
- Calculate the amount of money that will have accrued if he leaves the money in the bank for 1, 5, 8 and 15 years.
- If he moves his money into an account that pays 8% or one that pays 10%, rework part (a) using these new interest rates.
- What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you have completed in this problem?
