Time value of Money
Part-I,
Mr. Zigong wishes to know about the future values of the single cash flow deposited today that will be
available at the end of the deposit period if the interest is compounded annually at the rate specified over
some specific period. For example, the situation for the first case is that single cash flow is 200$, interest
rate is 5%, and deposit period is 20 years. Under second case, single cash flow is 4500$, interest rate is
8%, and deposit period is 7 years. Whereas under third case, single cash flow is 10,000$, interest rate is
9%, and deposit period is 10 years. In addition, under fourth case, single cash flow is 25,000$, interest
rate is 10%, and deposit period is 12 years. Besides, under last case, single cash flow is 37000$, interest
rate is 11%, and deposit period is 5 years, respectively.
Part-II,
The significance of present value is quite vital in the financial world of the business. Calculate the present value of the cash flow, discounting at the rate given and assuming that the cash flow is received at the end of the period noted. For instance, if the amount of cash flow is 7,000 with the discounting rate of 12% and end of periods are 4 years. For the second, condition, the amount of cash flow is 28,000 with the discounting rate of 8% and end of periods are 20 years, while under third condition, the amount of cash flow is 10,000 with the discounting rate of 14% and end of periods are 12 years. For the fourth condition,the amount of cash flow is 150,000 with the discounting rate of 11% and end of periods are 6 years.
Finally, the amount of cash flow is 45,000 with the discounting rate of 20% and end of periods are 8 years.
Part-III,
Jorsen Kithak wishes to analyze the two cases of annuity for 10-years, C and D. Annuity C is an ordinary annuity of $2,500 per year for 10 years with the 10% annual interest. Whereas the D ordinary annuity has $3000 per year for 10 years with the 20% annual interest. Your task is to analyze both ordinary annuities while finding the future values at the end of 10 years. Also explain which annuity is better in both cases above.