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## BUSN380 Week 4 TCO 5 Chap 13 Notes - Calculating Time Value of money &amp; Rate of Return

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# BUSN380 Week 4 TCO 5 Chap 13 Notes - Calculating Time Value of money &amp; Rate of Return

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BUSN380 Week 4 TCO 5 Chap 13 Notes - Calculating Time Value of money &amp; Rate of Return
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Date Created: 11/06/15
BUSN380 Week 4 Notes FINANCIAL PLANNING PROBLEMS CHAPTER 13 1 Calculating the Amount for an Emergency Fund Beth and Bob Martin have a total take home pay of 3200 a month Their monthly expenses total 2800 Calculate the amount the couple needs to establish an emergency fund How did you calculate this amount 3 Determining Profit or Loss from an Investment Three years ago you purchased 150 shares of IBM stock for 88 a share Today you sold your IBM stock for 103 a share For this problem ignore commissions that would be charged to buy and sell your IBM shares a What is the amount of profit you earned on each share of IBM stock b What is the total amount of profit for your IBM investment 4 Determining the Time Value of Money Using Exhibit 131 complete the following table Then answer the questions that follow the table Hint To calculate the amount of interest subtract the amount of your total investment from the value at the end of the time period Investment Total Annu Value at Amoun Total al Num the End of t of Amoun Depo Rate of ber of Time Investm t of sit Return Years Period ent Interest 200 0 4 10 200 0 10 10 200 0 4 20 200 10 20 a In the above situations describe the effect that the rate of return has on the investment value at the end of the selected time period b In the above situations describe the effect that the number of years has on the investment value at the end of the selected time period 5 Calculating Rate of Return Assume that at the beginning of the year you purchase an investment for 6000 that pays 80 annual income Also assume the investment s value has increased to 6900 by the end of the year a What is the rate of return for this investment Step 1 Subtract the investment s initial value from the investment s value at the end of the year 6900 6000 900 Step 2 Add the annual income and the amount from Step 1 900 80 980 Step 3 Divide the total dollar amount of return Step 2 by the original investment 980 6000 163 163 9 Determining Interest Three years ago you purchased a Heinz corporate bond that pays 675 percent annual interest The face value of the bond is 1000 What is the total dollar amount of interest that you received from your bond investment over the threeyear period p 421

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