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HPU BUA 234 - Time Value/Amortization Schedule Practice

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Time Value/Amortization Schedule Practice1. Today, you put $1,000 in a mutual fund. If you earn 10% annually, how muchwill you have in the fund in 10 years?2. You put $1,000 in a mutual fund annually (end-of-year). If you earn 10% annually, how much will you have in the fund in 10 years?3. Today, you put $10,000 in a mutual fund. Starting in 12 months and every year for 10 years, you add $3,000 per year. How much will you have in the fund in 10 years?4. Your uncle would like you to invest in a start-up company that is in the early stages of finding a cure for aging. The company’s goal is to make every aspect of the human body replaceable which will result in infinite life. He claims your portion of the investment would be worth $1,000,000 in five years.a. If you would like a 45 percent return, how much would you be willing to invest today?b. If he asks you for $300,000, what is your expected annual return?c. Based on a and b, should you invest?d. If you invested the $300,000 and the investment was worth $5,000 in five years, what was your annual return? 5. Your grandma is considering investing in a bond with a $100 annual interest payment (end-of-year) that matures in 10 years. In 10 years, your grandma would receive $1,000. Grandma would like a 5% annual return. What would be the maximum amount your grandma would pay for the bonds?6. You are considering buying a house for $150,000. You have a down payment of $30,000. Assume a 15 year, 6% mortgage, monthly paymentsa. Develop the amortization schedule b. How much will your mortgage payment equal? _________c. List the house (asset) value assuming 4% annual appreciation and mortgage (liability) balance that should be stated on the balance sheet at the end of 5 years ___________________________________________10 years __________________________________________15 years __________________________________________d. How much interest expense will you pay in the Fifth year? _________Tenth year? _________Fifteenth year? ________e. Why the difference in interest expense for each year? Assume the house appreciates at 4% annually for the next 10 years. f. How much will it be worth in 10 years? ___________________g. Assume you only have a house and mortgage. That is, you have no other assets or liabilities. What would your net worth equal in 10 years? __________________h. If you sold the house to your sister at the end of 10 years and she had a $30,000 down payment, what would her mortgage payment equal assuming her loan was for 30 years at 7%, monthly payments?i. If you intended to use the proceeds (sales price – mortgage balance) to buy a yacht, how much could you pay for the yacht? j. If yachts appreciate at 4% annually, what would be the value of the yacht in today’s dollars? __________ 7. Assume you invested the $30,000 at a 9% annual return rather than buy the house. a. How much would the $30,000 be worth in 10 years? b. If inflation equaled 10% annually during this time, how much purchasing power did you lose over the past 10 years? 8. What is your annual (compound) rate of return if you invest $10,000 now and receive $26,000 at the end of ten years?9. You would like to buy a NEW Porsche 911 in five years. The Porsche with the features you want costs $90,000 today. You expect new models to increase at the rate of 6 percent annually. Realistically, you think you could afford one in five years (you want to pay cash). Ignore taxes. b, c, d, and e are unrelateda. What will a new Porsche cost in five years?b. If you believe you can obtain a 5 percent annual return and you plan on investing equal lump sum payments once a year starting in 12 months, how much will you have to invest annually to reach your goal?c. If you believe you can save $10,000 annually (starting in 12 months), what annual return will you have to earn in order to reach your goal?d. If you believe you can save $20,000 annually and earn 7%, when will you be able to buy a Porsche?e. If you redirect funds from your savings account to a stock mutual fundthat you hope returns 7% annually, how much will you have to redirectif you plan on reaching your goal in five years?10. You would like to buy a used cigarette boat in four years. The boat with the condition you want costs $80,000 today. You expect boats in similar condition to appreciate at the rate of 4 percent annually. You plan on paying cash. Ignore taxes.a. How much do you expect to pay for a boat in four years? b. If you believe you can save $10,000 annually (starting in 12 months) and increase your savings by 5% per year, what annual return will you have to earn in order to reach your goal?11. If the inflation rate is 8 percent per year for 5 years, determine how much purchasing power the dollar lost. Your answer should be given as a percentage.9. Today, you figure you need $40,000 a year to live if you were going to retire today. If you are 40 and want to retire when you are 60, how much will you need at age 60 if the inflation rate is 3 percent per year?10. You have $25,000 invested in Sun Microsystems. You expect Sun to appreciate at 10% a year. You want to buy a new Ford SUV, current price $30,000. You expect the price of vehicles to increase at the rate of 3 percent. Will you have enough money to buy a new Ford SUV in five years? Assume no taxes. 11. You have a three year old son. You would like to pay for his first year of college 15 years from now. If tuition is $5,000 now and you expect it to go up at the rate of four percent, how much will the tuition be in 15 years? If you want to make the same annual investment for the next 15 years to accomplish your goal, how much do you need to save annually if you assume an annual return of seven percent. How much will your son's tuition be in his second year? 12. You know that you will receive $500,000 when your grandmother dies. If inflation isexpected to be 4% annually and she dies in 15 years, what is the value of your inheritancein today’s dollars?12. Your financial consultant told you should have $4,000,000 worth of investments by the time you retire in 35 years. If you have nothing saved right now and expect a 7 percent return, how much do you need to save annually (end-of-year, equal payments) to reach your goal?13. Your financial consultant told you should have $4,000,000 worth of investments by the time you retire in 35 years. If you have nothing saved right


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