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 A Dollar received today is worth more than a dollar received 10 years from
now because of the power of compounding.

 When calculating inflation, interest is calculated monthly.

 Payments represent principal and interest only.

 Present value represents principal.


 Future value represents interest only.

 Total periods is equal to periods per year times number of years.

 Another term for annual interest is nominal interest.

 Simple interest will yield a greater return on investment than compound
interest.

 Nominal interest is the same as effective interest if there is two
compounding periods in a year.

 Effective interest is the same as the Annual percentage rate.

 When calculating the present value, interest is referred to as the discount
rate.

 When calculating the future value to the present value, the interest rate is
referred to as required rate of return.

 Perpetuity is when an annuity has an indefinite life.

 A regular annuity is the same as a loan amortization.

 A sinking fund is a series of regular payments.

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 (ou have $2000 today that you can invest at 5.5% for the next 4 years at
monthly compounding. How much will you have in 4 years?

 (ou borrowed $18,000 for renovating your flat. The loan term is 4 years at
11% interest. What is your monthly repayment?

 (ou wish to accumulate $1,000,000 in 30 years. What is the lump sum
that you would have to deposit today at 12% compounded quarterly to
achieve that?

 (ou can afford a $450.00 a month house renovation payment. At 9%

interest, how much can you borrow today on a three year house
renovation loan?


Q20. Tom¶s received a $5,000 gift from his parents. If he intend to invest this money in
a fund that gives a 14% per annum return, how much would he have in 12 years
time?

Q21. Joe is doing calculation for his retirement. He wants to find out whether he had
sufficient money now to meet his retirement in 10 years¶ time. He expects that by
retirement he should have $1,000,000. What is the minimum amount of money
he should have now to meet his retirement target? Assume interest in
compounded semi-annually at 5% per annum.

Q22. Joe can afford to pay 10% of his salary every month to repay his housing loan.
How much would he have paid in 5 years¶ time if interest is 10% compounded
monthly? His salary is $2,000 to be paid at the end of each month.




  
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 #$%. This is the foundation of the concept of the time value of money where an
asset received today is worth more than in the future because of the power of
compounding.

 &c%. Inflation is calculated annually.

 &c%. Payments can either represent principal or principal and interest.

 #$%. Present value represents principal.

 &c%. Future value represents both principal and interest.

 #$%. Total periods is equal to periods per year times number of years.

 #$%. Annual interest is the same as nominal interest.

 &c%. Compound interest will always yield a greater return on investment than
simple interest.

 &c%. Nominal interest will only be the same as effective interest if there is only
one annual compounding period.

 #$%. Annual percentage rate is also called effective interest rate.

 #$%. Interest is commonly referred to as the discount rate in present value
calculations.

 #$%. The interest rate is referred to as the required rate of return as well as the
discount rate.

 #$%. Perpetuities have an indefinite life.

 #$%. Both are a series of reoccurring payments.

 #$%. A sinking fund is a series of regular payments.

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 Function to use: !

Rate: 5.5%/12
NPer: 4*12
PV: 2000
PMT: 0
Type:
Answer: '
. Function to use: PMT
Rate: 11%/12
NPer: 4*12
PV: 18000
FV: 0
Type: 0 or 1
Answer: '
'

 Function to use: PV

Rate: 12%/4
NPer: 30*4
FV: 1000000
PMT: 0
Type:
Answer: '.

 Function to use: PV

Rate: 9%/12
NPer: 3*12
FV: 0
PMT: 450
Type: 0 or 1
Answer: ' or '

 Function to use: FV

Rate: 14%
NPer: 12
PMT: 0
PV: 5000
Type:
Answer: $24,089.52

 Function to use: PV

Rate: 5%/2
NPer: 10*2
FV: 1000000
Answer: $610,270.94

 Function to use: FV

Rate: 10%/12
NPer: 5*12
PMT: 200
Type: 0
Answer: $15,487.41