Assignment on Time Value of Money and Investment Analysis

Part I Time Value of Money (31 Doints)

In this assignment you will be covering topics related to the time value of money and investment analysis. Here you must perform the calculations necessary to answer the questions in both Excel and with a calculator except where noted below. You will be submitting Both  your Excel spreadsheet AIM a formatted PDF document that will clearly identify any assumptions used and the structure of your analysis. Make sure that your PDF submission fully stands on its own without need to access your Excel document. 

1. You have two opportunities to invest 518.000 for 7 years. The first provides a yield of 4.25% annually, compounded monthly. The second provides a yield of 4.50% annually, compounded quarterly. Which investment would be prefix-led and why? Be sure to document your conclusion with evidence. (3 points) 

2. Which would you prefer: $20,000 today, $40,000 fifteen years from now, or $80,000 thirty years from now? Answer this question in the face of each of three different scenarios: annual interest rates of 4%, 6%. and 8%. (this means that there are three dyferent problems to solve) (5 points) 

3. You can purchase a bond that has IS years to maturity. In exchange for your purchase today, it will pay you $1,780 at the end of each of the next fifteen years with the first payment coming one year from now. It can be purchased for SI5,000. Should you buy the bond given that you can earn 9% annually on an alternative investment of equivalent risk? (4 points)

4. Suppose you find oil in your backyard and the oil company forecasts the following royalty payments at the end of each of the next six years. Year I = $ 12,000; Year 2 = $18,000; Year 3 = $21,000, Year 4 = $25,000; Year 5 = $27,000; Year 6 = $15,000.

a. What is the present value of your discovery if your funds could receive a 5% return in an alternative investment? (3 points)

b. If you were to decide to take each of the royalty checks identified above and deposit them in a savings account that earned 2.4% annually but paid out interest each month, what balance would you have in your account at the end of the six years? (3 points) c. In the face of the information provided above, what is the least that you would be willing to accept if you were to sell your oil rights today? Justify your answer. (2 points) 

5. You have a filly outfitted deluxe party bus that you have arranged to lease out to a group of alumni for year-around tailgating activities for $8,600 per year. The alums are optimistic about the Rams' outlook and have signed a contract with you at this rate for the next 12 years. You determine that you face an opportunity cost of capital of 5.4% per year. What is the present value of the payments you expect to receive? (Demonstrate/describe how you got this value) (4 points) 

6. Farmer Fred took out a loan for $235,000 to purchase a tractor. Using on(v the tools provided in this section of the course demonstrate what the annual payments would be that would allow him to repay this loan in equal annual payments across 6 years if he faces a 6.0% annual interest rate on this loan. Show also how much total interest he will pay over the life of the loan. (4 points) 

7. You have just inherited a parcel of land which is expected to generate net rental income (i.e. in excess of property taxes and maintenance costs) of $21,000 annually for the foreseeable future. Given that you face an opportunity cost of capital of 5.5% annually, what is the present value of the land that you have inherited? (3 points)