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Financial Management Calculations Guide

This document provides examples of compound interest, present value, and time value of money calculations. It includes 7 questions about topics like determining future values given regular deposits and interest rates, calculating present values, and choosing between lump sums and annuities. The questions cover concepts taught in an introduction to financial management course.

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Logan zheng
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7 views2 pages

Financial Management Calculations Guide

This document provides examples of compound interest, present value, and time value of money calculations. It includes 7 questions about topics like determining future values given regular deposits and interest rates, calculating present values, and choosing between lump sums and annuities. The questions cover concepts taught in an introduction to financial management course.

Uploaded by

Logan zheng
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Session 2021/2022 – Semester I

EIA1001 Introduction to Financial Management


EIA1010 Introduction to Financial Management & Accounting

Coverage: Lecture Topic 9


Tutorial: Week 10

1. If you deposit $10,000 in a bank account that pays 10% interest annually, how much
will be in your account after 5 years?

2. What is the present value of a security that will pay $5,000 in 20years if securities of
equal risk pay 7% annually?

3. Your parents will retire in 18years. They currently have $250,000 saved, and they think
they will need $1,000,000 at retirement. What annual interest rate must they earn to
reach their goal, assuming they don’t save any additional funds?

4. If you deposit money today in an account that pays 6.5% annual interest, how long will it
take to double your money?

5. Mr. Jackson has been awarded a bonus for his outstanding work. His employer offers him
a choice of a lump-sum of $5,000 today, or an annuity of $1,250 a year for the next five
years. Which option should Mr. Jackson choose if his opportunity cost is 9 percent?

6. In their meeting with their advisor, Mr. and Mrs. O'Rourke concluded that they would
need $40,000 per year during their retirement years in order to live comfortably. They
will retire 10 years from now and expect a 20-year retirement period. How much should
Mr. and Mrs. O'Rourke deposit now in a bank account paying 9 percent to reach financial
happiness during retirement? Assume that once they retire, the O'Rourkes will withdraw
$40,000 from their retirement account at the end of each year.

7. You are saving money to buy a car. If you save $310 per month starting one month from
now at an interest rate of 6%, how much will you be able to spend on the car after saving
for 4 years?
8. Assume you have a choice between two deposit accounts. Account X has an annual
percentage rate of 12.25 percent but with interest compounded monthly. Account Y has
an annual percentage rate of 12.20 percent with interest compounded continuously.
Which account provides the highest effective annual return?

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