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Assignment 2 TVM and Interest Concept

The document contains a student assignment with 5 questions regarding time value of money concepts like compound interest, simple interest, and present/future value. It includes the questions, calculations, answers and cash flow diagrams for each question. The student's name is Khansa Diva Nur Aprilia and they are in class A on Mondays from 9:30-12:00.

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KHANSA DIVA NUR APRILIA
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79 views

Assignment 2 TVM and Interest Concept

The document contains a student assignment with 5 questions regarding time value of money concepts like compound interest, simple interest, and present/future value. It includes the questions, calculations, answers and cash flow diagrams for each question. The student's name is Khansa Diva Nur Aprilia and they are in class A on Mondays from 9:30-12:00.

Uploaded by

KHANSA DIVA NUR APRILIA
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Nama : Khansa Diva Nur Aprilia

NIM : 19522332
Kelas : A (Senin, 09:30-12:00)

Assignment 2 TVM and Interest Concept

1. A man deposits $500 now. The credit union pays 5% compounded annually. At the end of five
years, how much will he have in his account?
Answer :
P = $500
𝑖 = 5% annually = 0,05 per year
𝑛 = 5 years
Compound interest formula
F = P(1 + 𝑖)𝑛
Year 1 : F = $500(1 + 0,05)1
F = $500(1,05)1
F = $525
Year 2 : F = $500(1 + 0,05)2
F = $500(1,05)2
F = $500(1,1025)
F = $551,25
Year 3 : F = $500(1 + 0,05)3
F = $500(1,05)3
F = $500(1,157625)
F = $578,8125
Year 4 : F = $500(1 + 0,05)4
F = $500(1,05)4
F = $500(1,21550625)
F = $607,753125
Year 5 : F = $500(1 + 0,05)5
F = $500(1,05)5
F = $500(1,276281563)
F = $638,1407813
Year Principal Interest Amount Owned Amount Obtained
0 $500 0 $500 0
1 0 $25 $525 0
2 0 $26,25 $551,25 0
3 0 $27,5625 $578,8125 0
4 0 $28,940625 $607,753125 0
5 0 $30,3876563 $638,1407813 $638,1407813
Cash Flow Diagram :
F = $638,1407813

1 2 3 4 5
𝑖 = 5%
P = $500 𝑛=5

2. If $500 were deposited in a bank savings account, how much would be in the account three
years hence if the bank paid 6% interest compounded annually?
Answer :
P = $500
𝑖 = 6% annually = 0,06 per year
𝑛 = 3 years
Compound interest formula
F = P(1 + 𝑖)𝑛
Year 1 : F = $500(1 + 0,06)1
F = $500(1,06)1
F = $530
Year 2 : F = $500(1 + 0,06)2
F = $500(1,06)2
F = $500(1,1236)
F = $561,8
Year 3 : F = $500(1 + 0,06)3
F = $500(1,06)3
F = $500(1,191016)
F = $595,508
Year Principal Interest Amount Owned Amount Obtained
0 $500 0 $500 0
1 0 $30 $530 0
2 0 $31,8 $561,8 0
3 0 $33,708 $595,508 $595,508
Cash Flow Diagram :
F = $595,508

1 2 3
𝑖 = 6%
P = $500 𝑛=3

3. Iselt Welding has extra funds to invest for future capital expansion. If the selected investment
pays simple interest, what interest rate would be required for the amount to grow from $60,000
to $90,000 in 5 years?
Answer :
P = $60,000
F = $90,000
𝑛 = 5 years
Simple interest formulas
F=P+P𝑛𝑖
$90,000 = $60,000 + $60,000(5) 𝑖
Find the interest rate
$90,000−$60,000
𝑖= $60,000(5)
$30,000
𝑖 = $300,000

𝑖 = 0.10 per year


𝑖 = 10% annually
Cash Flow Diagram :
F = $90,000

1 2 3 4 5
𝑖 = 10%
P = $60,000 𝑛=5

4. A solid waste disposal company borrowed money at 10% per year interest to purchase new
haulers and other equipment needed at the company owned landfill site. If the company got the
loan 2 years ago and paid it off with a single payment of $4,600,000, what was the principal
amount P of the loan?
Answer :
F = $4,600,000
𝑖 = 10% per year = 0.1 per year
𝑛 = 2 years
Single payment compound factor formulas
P = F(1 + 𝑖)−𝑛
P = $4,600,000(1 + 0.1)−2
P = $4,600,000(1.1)−2
1
P = $4,600,000(1.1)2
1
P = $4,600,000(1.21)

P = $3,801,652.893
Cash Flow Diagram :

P = $3,801,652.893

1 2

F = $4,600,000
𝑖 = 10%
𝑛=2

5. If you wish to have $800 in a saving account at the end of four years, and 5% interest compound
was paid annually, how much should you put into the savings account now?
Answer :
F = $800
𝑖 = 5% annually = 0,05 per year
𝑛 = 4 years
Single Payment Present Worth Factor Formulas
1
P = F[(1+𝑖)𝑛 ]
1
P = $800[(1+0,05)4 ]
1
P = $800[(1,05)4 ]
1
P = $800[1,21550625]

P = $800[0,822702474]
P = $658,1619798
Cash Flow Diagram :
F = $800

1 2 3 4

P = $658,1619798
𝑖 = 5%
𝑛=4

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