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Understanding Finance Through Group Analysis and Time Value of Money Problems

In this lab exercise for FIN3013, students will collaborate in groups of four to discuss the performance of four analyzed companies relative to the S&P 500 using graphs created in Assignment #3. The exercise emphasizes similarities and differences in the graphs, fostering dialogue about financial analysis. Additionally, students will engage with time value of money concepts, calculating percentage returns, future value, and present value using calculations and HP10B-II calculators through a variety of practical example problems.

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Understanding Finance Through Group Analysis and Time Value of Money Problems

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  1. FIN3013 Lab #4

  2. Group Exercise • Divide into groups of four students • Discuss the graphs you created in Assignment #3 • What four companies were analyzed? • How did each perform relative to the S&P500 • What similarities do you notice about the four graphs? • What differences do you notice? • Do you have any questions about the assignment or results? UTSA College of Business FIN3013Lab

  3. Percentage Returns • In Assignment #3, % return was calculated as (P2-P1)/ P1 • Notice how this relates to the basic time value of money formula: • Future Value = Present Value(1+i) • FV/PV = 1 + i • (FV/PV) – 1 = i • (FV/PV) – (PV/PV) = i • (FV-PV)/PV = i • (P2-P1)/ P1 = return UTSA College of Business FIN3013Lab

  4. Using the HP10B-II Calculator • 5 Basic Keys • PV = present value • FV = future value • N = number of time periods • I/YR = interest rate or growth rate • PMT = payment UTSA College of Business FIN3013Lab

  5. Example Problem #1 • Claudia bought a share of stock for $52 at the beginning of the year. At the end of the year she was able to sell the stock for $61. What was her rate of return? UTSA College of Business FIN3013Lab

  6. Example Problem #2 • Larry places $1,000 in a savings account earning 8% interest. How much will be in the savings account after 3 years? UTSA College of Business FIN3013Lab

  7. Example Problem #3 • What is the present value of $10,000 received 6 years from now if the interest rate is 4.5%? UTSA College of Business FIN3013Lab

  8. Example Problem #4 • You place $1,000 in a savings account that earns 7% interest. How long will it be before there is $2500 in the account? UTSA College of Business FIN3013Lab

  9. Example Problem #5Solving for FV Alan places $100 in an account each month for 25 years. He earns 6% interest, compounded monthly. How much will he have at the end of 25 years? UTSA College of Business FIN3013Lab

  10. Example Problem #6Solving for PMT Iris borrows $18,000 to purchase a car. Glendale Bank makes her a 5-year car loan with a 7% interest rate. What will her monthly car payments be? UTSA College of Business FIN3013Lab

  11. Example Problem #7Solving for PV As part of a legal settlement, Mercury Medical agrees to pay Patricia $10,000 a year for the next 20 years. At a 9% interest rate, what is the present value of this agreement? UTSA College of Business FIN3013Lab

  12. Example Problem #8Solving for I/YR Raymond has placed $20 in his savings account every month for the past 18 years. If he earned 5% interest, compounded monthly on his account, how much does he have in the account? UTSA College of Business FIN3013Lab

  13. Example Problem #9Solving for N Sarah is placing $500 each quarter into a special savings account that earns 6% interest, compounded quarterly. When she has $10,000 in the account, she will use the money for a down payment on a new car. How long will it be before Sarah has accumulated $10,000? UTSA College of Business FIN3013Lab

  14. Example Problem #10Multiple Cash Flows Clarksville just hired a new city manager. The new city manager will receive an immediate signing bonus of $20,000. The one year contract also states that in addition to a month salary of $8,000 the manager will receive $5,000 in three months to cover moving and relocation expenses. Using an 8% discount rate, what is the present value of this one year contract? UTSA College of Business FIN3013Lab

  15. Example Problem #11EAR • Guadalupe State Bank is offering a savings account that pays 6% interest, compounded monthly. What is the EAR on this account? UTSA College of Business FIN3013Lab

  16. For Assignment #4 • Work TVM problems UTSA College of Business FIN3013Lab

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