Math is not my best friend. I need help with simple interest, compound interest and annuity calculations to complete this semester. All parts should be completed and need to show work. 1. Evaluate the use of a simple interest loan and a simple discount note to cover the cost of goods in time to earn cash discounts. Use ordinary interest for these calculations. 2. Use compound interest formulas to analyze the benefit of a possible investment instead of keeping all cash accounts.3. Use annuities to determine present values on a loan for a major capital purchase and use annuities to determine future values in a sinking fund.
annuity_calculator_parts_c___d.xlsx
mba_math_project_4.docx
Unformatted Attachment Preview
Ordinary Annuity Calculator
Use the File menu above to “Make a Copy”. You cannot change the original file, but you can work with your own copy.
Click on the C1, C2, D1, and D2 tabs below to enter and save your values for each of the project questions in a separate
P=
R=
T=
m=
$3,000.00 <---enter your payment amount here
4.00% <---enter the nominal (annual) interest rate here
5 <---enter the time in years here
52 <---enter the number of compounding periods per year here
Do not change any of the cells below. The formulas will automatically adjust for the values you give above.
Interest per period: i = 0.08%
Number of payments: n = 260
Annuity FV factor = 287.7015126
Future Value = $863,104.54
Annuity PV factor = 235.5681867
Present Value = $706,704.56
Name:
work with your own copy.
ject questions in a separate
The original example
shows a payment of
Change the values in
cells B4, B6, B8, and
the values you give above.
Ordinary Annuity Calculator
Use the File menu above to "Make a Copy". You cannot change the original file, but you can work with your own copy.
P=
R=
T=
m=
$3,000.00 <---enter your payment amount here
4.00% <---enter the nominal (annual) interest rate here
5 <---enter the time in years here
52 <---enter the number of compounding periods per year here
Do not change any of the cells below. The formulas will automatically adjust for the values you give above.
Interest per period: i = 0.08%
Number of payments: n = 260
Annuity FV factor = 287.7015126
Future Value = $863,104.54
Annuity PV factor = 235.5681867
Present Value = $706,704.56
work with your own copy.
The original example
shows a payment of
Change the values in
cells B4, B6, B8, and
the values you give above.
Ordinary Annuity Calculator
Use the File menu above to "Make a Copy". You cannot change the original file, but you can work with your own copy.
P=
R=
T=
m=
$3,000.00 <---enter your payment amount here
4.00% <---enter the nominal (annual) interest rate here
5 <---enter the time in years here
52 <---enter the number of compounding periods per year here
Do not change any of the cells below. The formulas will automatically adjust for the values you give above.
Interest per period: i = 0.08%
Number of payments: n = 260
Annuity FV factor = 287.7015126
Future Value = $863,104.54
Annuity PV factor = 235.5681867
Present Value = $706,704.56
work with your own copy.
The original example shows
a payment of $3000 weekly
Change the values in cells
B4, B6, B8, and B10 to
the values you give above.
Ordinary Annuity Calculator
Use the File menu above to "Make a Copy". You cannot change the original file, but you can work with your own copy.
P=
R=
T=
m=
$3,000.00 <---enter your payment amount here
4.00% <---enter the nominal (annual) interest rate here
5 <---enter the time in years here
52 <---enter the number of compounding periods per year here
Do not change any of the cells below. The formulas will automatically adjust for the values you give above.
Interest per period: i = 0.08%
Number of payments: n = 260
Annuity FV factor = 287.7015126
Future Value = $863,104.54
Annuity PV factor = 235.5681867
Present Value = $706,704.56
work with your own copy.
The original example
shows a payment of $3000
Change the values in cells
B4, B6, B8, and B10 to
the values you give above.
Math with Business Applications – Project #4
Better Outdoor Gear: Banking and Loans
Name:
Received:
A. (9 points) Evaluate the use of a simple interest loan and a simple discount note to cover the cost of
goods in time to earn cash discounts. Use ordinary interest for these calculations.
The invoice from ACME Outfitters, as shown below, showed that we could earn a cash discount of
$463.49 if the bill was paid on time (the due date for the discount was November 10). If we do not have
the cash on hand to pay off the invoice amount ($22,710.83), it may be cost effective to take out a short
term loan to pay ACME and earn the cash discount. We can pay the loan off later using revenue from
sales. This is a responsible choice as long as the cash discount is worth more than interest costs on the
loan.
ACME Outfitters
Fremont, PA
Invoice # 10024
Date: 10/12/2011
Terms: 2/10 EOM
Ship to: Better Outdoor Gear
1111 Alexander Rd
Madison, WI 53700
Qty
40
39
80
4
Unit
ea.
cs. (6)
ea.
gr.
Stock No.
42210
69105
11217
19223
Description
Tent
Sleeping bag
Backpack
Flashlight
Unit Cost
$124.28
$246.48
$77.48
$598.00
Subtotal
Total Cost
$4,971.20
$9,612.72
$6,198.40
$2,392.00
$23,174.32
Cash Discount
$463.49
Shipping &
Handling
Free!
Invoice Total
$22,710.83
1. Suppose that First Entrepreneurial National Bank offers 7.25% simple interest on loans on our
business account. How much interest is owed to FEN Bank in 60 days if we borrow the full invoice
amount ($22,710.83) to make the payment with the cash discount?
2. Alexander Savings & Loan also offers a 6.99% simple discount note with a $23,000 face value
payable in 45 days. Find the interest paid and the proceeds on this loan. Are the proceeds enough
to cover the invoice payment to ACME?
3. Is it better to take out a loan or skip the cash discount? If you take a loan, which bank has the best
deal? Explain your reasoning.
B. (9 points) Use compound interest formulas to analyze the benefit of a possible investment instead of
keeping all cash accounts.
Suppose that Better Outdoor Gear has $125,000 in cash available for short term investments.
Determine the interest amounts that can be earned from each of the following investment choices.
1. Alexander Savings & Loan offers a 21-month certificate of deposit that pays 4% interest
compounded quarterly. Funds must remain on deposit for the full 21 months.
2. FEN Bank offers a money market account that currently pays 3.99% interest compounded
monthly. Make your comparisons assuming we can deposit money for 21 months.
3. A 21-month U.S. Treasury bill is currently available with a purchase price of $125,000. This is a
simple discount note and the discount rate is 3.84%. Calculate the maturity value and the discount
amount (interest) on this note.
4. Which of the above investment choices is best? Explain your reasoning. Note: The three interest
amounts above should be close to each other, since we have the same $125,000 to invest for the
same time period, all with stated interest rates close to 4%. So if you are seeing one or two values
that are substantially different, you should go back and check the formulas you are using for your
interest calculations.
C. (6 points) Use annuities to determine present values on a loan for a major capital purchase. Use the
spreadsheet file “AnnuityCalculator” (from the Project4files folder). Include a copy of your results to
include with your project submission. Turn in just one spreadsheet file with all four parts (C1, C2, D1,
and D4); use the tabs within the spreadsheet to fill in values for each part.
1. In order to build a new warehouse and shipping center for the growing business, Better Outdoor
Gear plans to take out a mortgage loan. $2.5 million is needed for the project. A 20 year mortgage
from FEN Bank charges 6% interest and requires $16,000 monthly payments. Treat this as an
ordinary annuity. Determine the present value (principal) for the loan. Will this loan be sufficient
for the building project?
2. Try changing the monthly payment amount in the annuity calculator. Keep the interest rate at 6%
compounded monthly. What should the monthly payment (to nearest whole dollar) on the
mortgage be to get $2.5 million for the present value of the loan?
D. (6 points) Use annuities to determine future values in a sinking fund.
Use the AnnuityCalculator spreadsheet for this question too. Print a copy of your results to include with
your assignment submission.
1. Another investment strategy for large capital purchases is to regularly set aside savings for several
years to build up to a future value. Suppose that Better Outdoor Gear plans to save for an overhaul
of our computer systems three years from now. We can make quarterly payments of $6,000 into a
sinking fund (ordinary annuity) from Southwest Annuity Market Portfolios (SWAMP) that earns
7.25% interest compounded quarterly. How much money will we have available 3 years from now
for purchase of new computer systems?
2. An alternative investment fund from SWAMP requires $2000 monthly investments earning 7%
interest. How much will be in this fund 3 years from now? Which investment plan is better? By
how much?
...
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