This assignment covers material from Modules 3 and 4. You may have seen time value of money problems before, but they form the foundation of many areas of finance including financial planning, capital budgeting, and valuation. It is essential to understand not just how to perform the calculations but also why they work and how changes to the variables such as time, payment frequency, or interest rate affect the results. One of the first types of securities that you might use time value of money to value are bonds. Bonds make up a large part of the financing source for companies and the investment portfolio of individuals and institutional funds. ks available for this assignment. Make sure to clearly explain your work so that your Open Learning Faculty Member can give feedback. You may get partial marks, even if your final answer is incorrect.
Please show all your calculations and submit your work as a single pdf document. Respond to the following:
1. Assume the total cost of a university education will be $300,000 when your child enters university in 18 years. You currently have $65,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's university education?
2. Normandin Inc. has an unfunded pension liability of $575 million that must be paid within 20 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.8%, what is the present value of this liability?
3. You are scheduled to receive $15,000 in 2 years. When you receive it, you will invest it for 6 more years at 7.1% per year. How much will you have in 8 years?
4. You are planning to make monthly deposits of $400 into a retirement account that pays 10% interest compounded monthly. If your first deposit will be made 1 month from now, how large will your retirement account be in 30 years?
5. You have just purchased a new warehouse. To finance the purchase, you have arranged for a 30-year mortgage loan for 80% of the $3,400,000 purchase price. The monthly payment on this loan will be $17,500. What is the monthly compounded APR on this loan? What is the EAR?