Case Study on Motivation

Topics: Compound interest, Time value of money Pages: 3 (607 words) Published: June 23, 2013
Assignment No. 02
Financial Management & Policy
PROGRAM: MBA

Question No. 1
a) You need to have $50,000 at the end of 10 years. To accumulate this sum, you have decided to save a certain amount at the end of each of the next 10 years and deposit it in the bank. The bank pays 8 percent interest compounded annually for long-term deposits. How much will you have to save each year (to the nearest dollar)? b) Vernal Equinox wishes to borrow $10,000 for three years. A group of individuals agrees to lend him this amount if he contracts to pay them $16,000 at the end of the three years. What is the implicit compound annual interest rate implied by this contract (to the nearest whole percent)? Question No. 2

a) You have been offered a note with four years to maturity, which will pay $3,000 at the end of each of the four years. The price of the note to you is $10,200. What is the implicit compound annual interest rate you will receive (to the nearest whole percent)? b) Sales of the P.J. Cramer Company were $500,000 this year, and they are expected to grow at a compound rate of 20 percent for the next six years. What will be the sales figure at the end of each of the next six years?

Question No. 1
You need to have $ 50000 at the end of 10 year. To accumulate this sum, you have decided to save a certain amount at the end of each year of next 10 years and deposit it in the bank. The bank pay 8 % interest compounded annually for long-term deposits. How much will you have to save each year (to the nearest dollar)? Solution:

 F.V = $ 50000
n = 10 year
r = 8 % p.a
Installments (p) = ?
By using F.V annuity formula
F. V a = P[(1+r)n-1/r]
50000 = P[(1+0.08)10-1/0.08]
P = 3453.04

b)

Vernal Equinox wishes to borrow $ 10000 for three years. A group of individuals agree to lend him this amount if he contracts to pay them $ 16000 at the end of the three years. What is the implicit compound annual interest rate implied by this...
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