Rasmussen College FIn1000 Module 5

Problem 1 – Future Value of Investment

If a firm has $250,000
to invest and can earn 8.5%, compounded annually, how much will the firm have
after two years?

Rate
Nper
PMT
PV
Type
FV

Problem 2 – Future Value
of Retirement Account

A self-employed person
deposits $1,250 annually in a retirement account that earns 5.5%.

What will be the account
balance at age 62 if the savings program starts when the individual is age 50?

Rate
Nper
PMT
PV
Type
FV

How much additional
money will be in the account if the saver defers retirement until age 66 and
continues the annual contributions until then?
Hint: First calculate
the FV of the account at age 66 and then subtract the FV determined above (at
age 62) to arrive at the additional money saved.

Rate
Nper
PMT
PV
Type
FV

Additional money saved if the
contributions continue until age 66

The first part is a
repeat of 1a.
How much additional
money will be in the account if the saver discontinues the contributions at age
62, but lets it build up until retirement at age 66?
Hint: First calculate
the FV of the account at age 62, then utilize the FV of the account at age 62
as the PV in the FV calculation for the next 4 years.
Finally, subtract the FV
of the account at age 62 from the FV of the account with no additional
contributions to arrive at the additional money saved.

Rate
Nper
PMT
PV
Type
FV

Rate
Nper
PMT
PV
Type
FV

Additional money saved if
contributions stop at age 62, but the money keeps growing until age 66.

Problem 3 – Present
Value of Savings Account

A father has decided to
set aside a one time lump sum for college that will amount to $60,000 by the
time
his 5 year old is 18
years old (13 years). Using 8% as the rate and assuming no further investments
will be made,
how much must the father
invest today in order to have $60,000 in 13 years?

Rate
Nper
PMT
FV
Type
PV

Problem 4 – Home Loan

A couple borrows
$935,000 for 7 years for the purchase of a vacation home at an interest rate of
7%.
The loan requires that
the interest and principal be paid in equal, annual payments.
The interest is
determined on the declining balance that is owed.

What are the required
annual payments on the loan?

Rate
Nper
PV
FV
Type
PMT Yearly
payment owed

How much is the
principal loan balance reduced by during the first year?
Hint: To determine the
principal paid in year 1, subtract the interest paid in year 1 from the total
yearly payment.

Rate

Principal loan value

Interest paid in year 1

Total payment made in
year 1

Principal paid the first
year
Problem 5 – Lease
Payments

A company leases
equipment for 7 years.
The equipment costs
$28,000 and the owner wants to earn 9.5% on the lease.
What should be the
required lease payments?

Rate
Nper
PV
FV
Type
PMT