Finance

1. The financial management in any corporation or business involves management of money in terms of its value to increase its worth in future (Shim and Siegel, 2000). The concept of money management involves certain uncertainties when planning process is involved and therefore, it is important for financial managers to incorporate the future uncertainties and weakness in value of money. This concept of incorporating the depreciating value of money with todays value is called time value of money where it is implied that the worth of money or a dollar today is more than the dollar one will receive tomorrow (Drake and Fabozzi, 2009).
The concept of time value of money in terms of present and future value holds importance to financial managers since various risk factors are associated with investment decisions that are expected to reap benefits in future. Present value refers to value of money that incorporates the effect of time of value of money (Albrecht, Stice, Stice, Swain, 2007). Understanding the concept of present value leads to more accurate estimation of cost-benefit analysis which helps in analyzing the opportunity cost that an investor is bearing by investing in a certain instrument.

Interest rate is another factor that has resulted in giving increased importance to concept of present value. The variations in interest rates in an economy affect the future value that an investor is expected to receive over time and therefore, any investment considered today has to be made in accordance with present value of money which determines expected future returns (Parameswaran, 2006). Present value of money helps in analysis of future returns that an investment reaps and therefore is a useful tool for financial managers to manage their opportunity costs and investment decisions.

2.
FV  PV (1r)  n
PV 300
n 5
R 3

FV   300(10.03)  n
FV 347.78

PV 550
n 3
R 6

FV   550(10.06)  3
FV 655.05

PV 9500
n 7
R 4

FV   9500(10.04)  7
FV 12501.35
PV 4000
n 10
R 0.9

FV   4000(10.009)  10
FV 4374.93

PV FV(1r)  n
a.   FV 8700
R 2.00
N 3 Years

PV 8700  (1.02)3
PV 8198.3

FV 2500
R 6.00
N 9 Years

PV 2500 (1.06)9
PV 1479.74

FV 7200
R 14.00
N 2 Years

PV 7200(1.14)2
PV 5540.16

FV 440,000
R 9.00
N 8 Years

PV 440,000(1.09)8
PV 220821.20

4. Suppose you are to receive a stream of annual payments (also called an annuity) of 4000 every year for three years starting this year. The interest rate is 4. What is the present value of these three payments

PMT 4,000
N 3 Years
i 4.00
PV
PV               A(1i)  n- 1)i (1i)  n
PV 4,000 (1  0.04) 3 -1  0.04 (1 0.04)  3)
PV 11,100.36

5. Suppose you are to receive a payment of 9000 every year for three years. You are depositing these payments in a bank account that pays 3 interest. Given these three payments and this interest rate, how much will be in your bank account in three years
PMT 9,000
N 3 Years
i 3.00
i         3
FV
FV  A  (1  i) n  1 i
FV 27,818.1