Financial Analysis that Involves Time Value of Money LASA 1 (Essay Sample)

            Assignment 2: LASA 1—the Time Value of Money Student Name Institutional Affiliations                                           Issue A For the last 19 years, Mary has been depositing $500 in her savings account , which has earned 5% per year, compounded annually and is expected to continue paying that amount. Mary will make one more $500 deposit one year from today. If Mary closes the account right after she makes the last deposit, how much will this account be worth at that time? Compound Interest amount is calculated:
  Whereby; P = principal amount I = annual rate of interest n = period of interest periods A = amount of money accumulated after n years, including interest. Hence from the case study: P = 500, i = 5/100 = 0.05, n= 19. Therefore, to calculate the amount Mary has in the account today = =$16,533 Considering the amount of the money deposited by Mary will be by the end of 20 years and one year from today, the principal amount will change. Hence, Principal will become the amount currently in the account. If Mary considers closing the account after making another deposit of $500, $16,533is the amount in the bank at the end of the last deposit and closer of the account.  Issue B Mary has been working at the university for 25 years, with an excellent record of service. As a result, the board wants to reward her with a bonus to her retirement package. They are offering her $75,000 a year for 20 years, starting one year from her retirement date and each year for 19 years after that date. Mary would prefer a one-time payment the day after she retires. What would this amount be if the appropriate interest rate is 7%? Considering the option presented above, the amount to be given per year as a retirement package is $75,000. But, they have the option of paying it for 20 years each year $ 75,000. The interested earned per year is at a rate of 7%. Amount to earn per year for 19 years: =$2,803,422.37+ 75000                                                                                                                                 =$2,878,422.37  This is the pay-out per year based on the University’s package. Hence, for the following 19 years $2,803,422.37+ 75000=$2,878,422.37. Therefore, this is the amount she could receive after waiting for 20 years. Based on Mary, after she retires she wants to be paid in a lump sum amount. This is important and essential in calculating the overall amount into which Mary could receive in 20 years as the principal amount. To calculate the amount she could be paid as a lump sum; The Present Value of Annuity is;     Whereby             FV=Future Value             i=Interest Rate             t = number of years the amount is deposited or borrowed for. n = number of times the interest is compounded per year Hence; Future Value is the lump sum value to be paid to Mary                   =$743,839.039    Therefore, if Mary wants to be paid in a lump sum, the amount she could earn and be paid in once $743,839.039.Therefore, the amount Mary could earn as her retirement package is $743,839.039. According to the calculations above, it is essential and critical to consider the importance and necessity of being paid in a one lump sum. Issue C Mary’s replacement is unexpectedly hired away by another school and Mary is asked to stay in her position for another three years. The board assumes the bonus should stay the same, but Mary knows the present value of her bonus will change. What would be the present value of her deferred annuity? The Present Value of Annuity is;     Whereby             FV=Future Value             i=Interest Rate             t = number of years the amount is deposited or borrowed for. n = number of times the interest is compounded per year Hence; Future Value is the lump sum value to be paid to Mary                   =$882,427   Issue D Mary wants to help pay for her granddaughter Beth’s education. She has decided to pay for half of the tuition costs at State University, which are now $11,000 per year. Tuition is expected to increase at a rate of 7% per year into the foreseeable future. Beth just had her 12th birthday. Beth plans to start college on her 18th birthday and finish in four years. Mary will make a deposit today and continue making deposits each year until Beth starts college. The account will earn 4% interest, compounded annually. How much must Mary’s deposits be each year in order to pay half of Beth’s tuition at the beginning of each school each year? Mary has decided to pay half of the school fees, which ...