+1 862 207 3288 ADMN 3116 Financial Manaqement |
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Section A
Assignment #1
Required. Answer the following problems in accordance with the instructions
outlined below.
Due date: Tuesdav. September 30th, 2014 at 4:30 p.m.
Please follow the submission requirements outlined below:
1) Answers are to be typed or NEATLY handwritten. Messy or illegible answers
will not be marked. Print/write on only one side of each page.
Answers recorded on the back of any page will not be marked. Please provide
all calculations necessary to support your answers.
The Excel spreadsheet described in Problem #4 is to be emailed to the
instructor on or before the submission deadline.
2l A cover page is required. Please do not submit assignments in duo-tang or
plastic covers.
3) This assignment is to be completed on an individual basis.
4) As we will be reviewing the solutions to the assignment in class on October 1’t
students are required to brino a copy of their solutions to class to review as we
discuss the answers.
5) Severe penalties
will be imposed for
plaqiarism.
Problem #1
Mr. G. Day has just
invested
$8,000 for his son (age one) The money will be used
for his son’s university education 17 years from now. He calculates that he will
need $60,000 for his son’s education by the time the boy goes to university. What
annual rate of return will Mr. G. Day need to achieve his goal?
Problem #2
You are 25 years old, have recently graduated from university, and you are hoping
to retire when you are 55 years old. You are planning to make monthly deposits of
$275 into a retirement account that pays 9% compounded monthly (i.e. 9%112
=
.75% per month).
a) lf your first deposit will be made one month from now, how large will your
retirement account be when you turn 55 years old?
b) Rather than making deposits now, you decide to take five years to backpack
across Europe and Asia, taking part-time jobs
along the way. Once your return to
Canada you intent to work fulltime and start making the monthly deposits when you
turn 30 years old, with the intent of still retiring when you turn 55 years old. Under
these circumstances how large will your retirement account be when you turn 55
years old?
c) Comparing the results from parts (a) and (b), how much of the difference in your
retirement account is due to interest earned on your savings and how much is due
to the amount you actually deposited into your account?
d) What retirement planning conclusions can you draw from the above
calcu lations?
Problem #3
You need $28,974 atthe end of ten years, and your only investment choice is an
8% long-term certificate of deposit with interest compounded annually. With the
certificate of deposit, you make an initial investment at the beginning of the first
year.
a) What single payment would be made at the beginning of the first year to
achieve this objective?
b) What amount would you pay at the end of each year annually for ten years to
achieve this same objective?
c) What amount would you pay at the beqinning of each year annually for ten years
to achieve this same objective if you also pay exactly $5,000 after five years?
Problem #4
You are 23 years old today and you wish to save for a trip to Europe tn 12 years,
when you turn 35 years old. Your plan is to deposit $1,000 into an investment
account today and deposit an additional $2,000 on your 27th birthday. You do not
intend to make any additional deposits to your investment account.
a) Use the FVIF factors to calculate the value of your investment account on your
35th birthday.
b) Prepare and provide a chart in Excel with the following headings and use basic
Excel formulas (addition, multiplication, etc.) to confirm your calculation from Part
(a)
Note: format all dollar amounts as follows: x,xxx.xx (i.e. two decimals, comma, no dollar
sign)
c) Using your chart from Part (b), change the rate of return to 7.5o/o to provide a
chart showing the value of your investment account at this higher rate of return. By
how much has your investment account increased in value as a result of increasing
your rate of return from 5% to 7.5%?
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