ACT3211 (G3n4):TIME VALUE OF MONEY (II) EXERCISE
1. What is the future value of a 5-year ordinary annuity with annual payments of RM200,
evaluated at a 15 percent interest rate? Annuity Due?
PMT= RM200
I=15%
N=5
M=1
PV=0
FV=?
FV= RM1,348.4762
Annuity Due= RM
2. What is the present value of a 10-year ordinary annuity with annual payments of $2000,
evaluated at a 10 percent interest rate?
FV=0
PMT=2000
N=10
I=10
M=1
PV=? RM12,289.1342
3. To pay for her college education, Sephia is saving RM2,000 at the beginning of each
year for the next eight years in a bank account paying 12 percent interest. How much
will Sephia have in that account at the end of 8th year?
Calculate using annuity due
I=12%
N=8
PMT=RM2,000
FV=RM27,551.3126
4. Assume that you will receive RM4,000 a year in Years 1 through 5, RM6,000 a year in
Years 6 through 8, and RM8,000 in Year 9, with all cash flows to be received at the end
of the year. If you require a 15 percent rate of return, what is the present value of these
cash flows?
CF0 = 0
CF1 to CF5 = RM4,000
CF6 to CF8 = RM6,000
CF9 = RM8,000
I=15%
NPV=? RM22,493.7182
5. Assume that you will saving RM1,000 a year in Years 1 through 5, RM2,000 a year in
Years 6 through 8, and RM5,000 in Year 9 and 10, with all cash flows to be received
at the end of the year. If you require a 10 percent rate of return, what is the future
value of these cash flows?
CF0 = 0
CF1 to CF5 = RM1,000
CF6 to CF8 = RM2,000
CF9 to CF10 = RM5,000
I = 10%
FV=? RM28,342.5246
6. Your bank offers to lend you $180,000 at an 8.5% annual interest rate to start your new
business. The terms require you to amortize the loan with 10 equal end-of-year
payments. How much interest would you be paying in Year 2? Total principal paid
from Year 1 till 4?
PV=$180,000
FV=$0
I=8.5%
N=10
PMT= $27,433.3869
Interest Year 2 = $14,268.6621
Total Prn paid in 4 years = $55,079.6813
7. Ahmad has purchased a new car for RM80,000. He paid RM30,000 as down payment
and he paid the balance by a loan from his hometown bank. The loan is to be paid on
a monthly basis for seven years charging 4 percent interest. How much are the
monthly payments? Principal paid in 4th month? Total interest paid till Year 2?
PV=RM50,000
M=12
I=4/12=0.3333%
N=7x12=84
PMT=? RM683.4311
PRN on 4th month? RM521.9656
Total interest paid in 2 years? RM3,512.3834
8. In their meeting with their advisor, Mr. & Mrs. Klopp concluded that they would need
RM80,000 per year during their retirement years in order to live comfortably. They
will retire 10 years from now and expect a 20 year retirement period. How much
should Mr. & Mrs. Klopp deposit now in a bank account paying 9 percent to reach
financial happiness during retirement?
CF0 = 0
C01 = RM0
F01 = 10
C02 = RM80,000
F02 = 20
I=9%
NPV=RM308,479.7073