how to build a report of the time value of money for Mary's retirement?

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Business Finance

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The Time Value of Money



Mary has been working for a university for almost 25 years and is now approaching retirement. She wants to address several financial issues before her retirement and has asked you to help her resolve the situations below. Her assignment to you is to provide a 4-5 page report, addressing each of the following issues separately. You are to show all your calculations and provide a detailed explanation for each issue.

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?

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%?

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?

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?

Cite with APA style format

Calculated the compounded interest over 20 years and evaluated the value of the savings account upon closing.

Calculated the bonus payout over 20 years vs. a one time payout with interest and distinguished which bonus option would be better for the client.

Calculated the present value of the bonus and analyzed the difference in bonus for the client.

Analyzed the tuition costs for the client and determined what the future costs will be and determined how these funds can be accumulated over time.

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Explanation & Answer

Attached.

Running Head: TIME VALUE OF MONEY

1

Time Value of Money
Institution Affiliation
Date:

TIME VALUE OF MONEY

2

Time value of money is essential to an individual that wants to understand the worth of
money in the present day and future (Peterson and Fabozzi, 2009). As such, the present or future
value of money is calculated to allow a person understand the worth of their money (Sherman
and American Management Association, 2011). An individual that is at the age of retirement is
likely to benefit from the time value of money since he or she can establish the worth of their
retirement money and bonus in the present day and future. Mary is almost reaching her
retirement age and would like to understand some financial issues related to her retirement. In a
bid to establish the time value of money in the case of Mary some of the values that will be
calculated in this report include present value, future value or compounded interest and the
starting principle. These values will make it easy for Mary to utilize the report to understand the
financial issues before she retires from her job.
Issue A:
The future value is calculated as follows;
FV = P (1+r/n) Yn
FV = future value
P = starting principle
r = annual rate of interest
Y = the number of years invested
n = number of compounding periods per year

TIME VALUE OF MONEY

3

In Mary’s case, calculating the co...


Anonymous
Just the thing I needed, saved me a lot of time.

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