Expert answer:Time Value of Money PowerPoint
Solved by verified expert:For this part of the course project, you will demonstrate your understanding of the time value of money.In your role as a financial advisor at Eagle Consulting, you will be meeting a potential customer, Keith Jones. Mr. Jones customer is 35 years old and married with two children, and he would like your help in planning a long-term investment strategy with the $100,000 he has to invest. In advance of your meeting, you decide to create a PowerPoint presentation that will educate Mr. Jones on the underpinnings of the time value of money. In doing so, your goal is to help your client understand the basic construct that a dollar today is more valuable than a dollar received tomorrow.To complete this assignment, do the following:Refer to the Eagle Consulting Info Sheet you downloaded for the previous course project pieceDevelop a 6-screen PowerPoint presentation with accompanying lecture notes that: Explains the concept of the time value of moneyProvides examples of how time value of money calculations are determinedThe presentation should include the following slides and accompanying lecture notes. The slide content should be brief and include supporting images or diagrams where appropriate. Use the Notes area beneath each slide to put the accompanying lecture notes for the slide.SlideContent1Title Slide2Slide Content: Main ideas of the time value of money Lecture Notes (100-150 words)Provide an explanation/definition of the time value of money.Explain why understanding the time value of money is important to investors.Explain the risk for investors in not understanding the time value of money.3Slide Content: Step-by-step example of a present value calculation using numbers Lecture Notes (100-150 words):Explain the present value formula.Explain how changing the variables in the formula will affect the investment outcome.4Slide Content: Step-by-step example of a future value calculation using numbers Lecture Notes (100-150 words):Explain the future value formula.Explain how changing the variables in the formula will affect the investment outcome.5Slide Content: Identify impacts of compounding on the calculation of present value and future value Lecture Notes (100-150 words):Provide examples of how compounding impacts both the present value and future value of investments.6Slide Content: Summarize the main points of the time value of money concepts. Lecture Notes (100-150 words):Explain why these concepts are critical to an investor.Save your assignment as a Microsoft PowerPoint presentation.
module_05_application_of_time_value_concepts_solutions_2.xls
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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
Rate
Nper
PMT
PV
Type
FV
8,50%
2
$0
($250.000)
0
$294.306,25
y, how much will the firm have after two years?
Problem 2 – Future Value of Retirement Account
These answers are incorrect. Please refer to the video link provided in my feedback at the bottom o
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
Rate
Nper
PMT
PV
Type
FV
5,50%
12
($1.250) This should be ($1,250)
$0,00 This should be zero
0
$20.481,99
How much additional money will be in the account if the saver defers retirement until age 66 and co
Hint: First calculate the FV of the account at age 66 and then subtract the FV determined above (a
Rate
Nper
PMT
PV
Type
FV
5,50%
16 This amount should be 16. You would subtract the individual’s age of 50 li
($1.250) This should be ($1,250)
$0,00 This should be zero
0
$30.801,42
$10.319,44 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
Hint: First calculate the FV of the account at age 62, then utilize the FV of the account at age 62 as
Finally, subtract the FV of the account at age 62 from the FV of the account with no additional con
Rate
Nper
PMT
PV
Type
FV
Rate
Nper
PMT
PV
Type
FV
5,50%
12
($1.250) The person will be contributing payments to their account so this amount
$0,00 This should be zero
0
$20.481,99
5,50%
4
0
($20.481,99) The amount in this PV cell should have been the ($20,481.99) amount from
0
$25.373,59
$4.891,60 Additional money saved if contributions stop at age 62, but the money kee
You needed to subtract the FV amount in cell B47 from the the FV amount above in cell B3
dback at the bottom of the Problem 1 tab of this document
the individual is age 50?
nt until age 66 and continues the annual contributions until then?
determined above (at age 62) to arrive at the additional money saved.
dividual’s age of 50 listed in the first question above from their retirement age of 66 which would give you 16
You needed to subtract the FV amount in Cell b23 from the FV above in cell B13
e contributions at age 62, but lets it build up until retirement at age 66?
e account at age 62 as the PV in the FV calculation for the next 4 years.
with no additional contributions to arrive at the additional money saved.
count so this amount should be ($1250)
0,481.99) amount from the FV above in cell B38
62, but the money keeps growing until age 66.
mount above in cell B38
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 th
his 5 year old is 18 years old (13 years). Using 8% as the rate and assuming no further investments
how much must the father invest today in order to have $60,000 in 13 years?
Rate
Nper
PMT
FV
Type
PV
8,00%
13
0
$60.000,00
0
($22.061,88)
Problem 4 – Home Loan
These answers are incorrect. Please refer to the video link provided in my feedback at the bottom o
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
7,00%
7
$935.000
$0,00
0
($173.492,26) 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 ye
Rate
Principal loan value
Interest paid in year 1
Total payment made in year 1
Principal paid the first year
7,00%
$935.000 This should be $935,000 as the amount borrowed in
$65.450,00 Your answer was incorrect for the interest paid. You
$173.492,26
$108.042,26 This answer is incorrect. Please refer to the video in
You should subtract the amount in cell B25 which is the Total Pay
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
9,50%
7
($28.000) Should be ($28,000)
$0,00 Should be zero
0
$5.657,01 Formula should be PMT(B7,B8,B9,B10,B11)
…
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