BUSI 223 Exercise 1

Please complete the Time Value of Money, the Economic Indicators, and the Goals Worksheet.

Time Value of Money

Answer the 3 questions and bonus below. Please make sure that you include your inputs and round out 2 decimal points for all answers. For example. I want to see how much my $5,000 will be worth in 5 years if I can earn 4%.

PV = -5,000 (Make sure it is negative if you are paying the bank)

I/Y = 4 (Use the full number on the calculator and .04 if using Excel)

N = 5 (Use annual unless the question asks for monthly)

CPT FV = ANSWER rounded 2 decimal points

1. I want to be able to buy a car with cash in 3 years. I have $10,000 that I can invest today. I can get a bond earning 2%. How much will I have for the purchase?

2. I want to buy a house in 4 years. I need to have a down payment of $50,000. How much do I need to have today in order to have the down payment, if I can earn 3%?

3. I just graduated from school with $25,000 worth of debt. I want to know what my monthly payment is going to be. I was able to finance it over 7 years at 6%.

Bonus Question (5 points): Take one of your goals and use time value of money with it. You need to include your goal and inputs. For example, one of my goals is to buy furniture in 12 months and it will cost me $1,000. You need to find out how much you can earn on your money and how much you need today or how much you need to put away each month. Therefore, I could say that the interest rate is 2% and the time frame is 12 months. My FV is $1,000 and I would be solving for PMT in this situation.

Hints

1. When it is monthly, you need to change the setting to 12 payments per year on the calculator and divide the interest by 12 if you are using Excel.

1. If you are paying out for a payment or the present value (most of the time you will be using PV), then you need to enter it as a negative number.

1. Try to estimate what you think it will be before completing the mathematical equation. If you are getting a car payment of $1,000, then you probably entered something wrong.

1. Always clear out the calculator after each problem (2nd FV).

Economic Indicators

It is important to know what is going on in the economy. Please look up the following websites and attach the answers on the comments section.

1. From the Department of Labor, Bureau of Labor Statistics (www.BLS.gov), go to subject and under the “Unemployment” click the “National Unemployment Rate” link. Scroll down to “CPS News Release” and it will give you the Unemployment Rate (“UeR” in % for last month) in the first sentence. Report the Unemployment Rate.

2. From www.BLS.gov, go to subject and under “Inflation & Prices” click the “Consumer Price Index” link. Scroll down to the “News Releases.” Report the change in CPI-U (Consumer Price Index for All Urban Consumers) for the most recent month (as a percentage). Make sure to use the seasonally adjusted rate. It is in the first sentence.

3. From www.BEA.gov, “The Gross Domestic Product” (GDP) is available. Scroll down and look under the Principal Federal Economic Indicators. Report the quarterly change in GDP (as a percentage).

Goals Worksheet

Short Term

Goal

Amount

Time Frame

Intermediate

Goal

Amount

Time Frame

Long Term

Goal

Amount

Time Frame

Make sure that you have 3 goals for each time frame!