Understanding The Time Value Of Money

Concept of time value of money

Answer a: Fundamentals of time value concepts

The Concept of time value of money indicates that value of money depreciates year after year. It further reflects that at the present value of money is more than the future value. As per Chan and Rate (2018), time value of money refers to the concept that the value of money at present is more than the value the amount of money would have in the future. This is due to the potential earning capacity of money. A certain amount of money would earn more amount of interest if it is deposited at an earlier phase provided the rate of interest remains the same (Burns and Walker 2015).

For example, if $1000 is deposited at 10 percent interest for 1 year on 01.01.2018, it would earn an interest of $100 and the total amount combining the principal and interest would come to $1100 on 01.01.2019. Again, if the same amount of $1000 is deposited for 6 months on 01.07.2018, at 10 percent it would only yield at interest of 50. This means that the total amount would come to $ 1050 on 01.01.2019.

The above example shows that money used earlier would bear more utility than used in the future. One can point out that for same amount of money, the value of disbursement remains the same but the utility or benefit that can be availed or purchased with that money will be less in future. This difference is known as opportunity cost which a person incurs because he used a certain amount of money in the future. The value of time value of money is as follows:

FV=PV*[1+ (i/n)] ^ (n*t)

FV=Future value of money

PV=Present value of money

i=interest rate

n=number of compounding periods per year

t=number of years

PV	n	T	i	n*t	i/n	1+(i/n)	[1+(i/n)]^(n*t)	PV[1+(i/n)]^(nt)	FV
1000	4	1	10	4	2.5	3.5	150	150063	150063
1000	4	2	10	8	2.5	3.5	22519	22518754	22518754

Calculation of FV of money

The above shows compares the present value of money and the increment one can earn. If the money is deposited now, two years from now the value would be $ 22518754. If the same amount is deposited a year later, the value would be $ 150063. This analysis shows that value of money decreases with late investment and that is what is known as time value of money.

Discounting and compounding process and their uses (what is the rational for using discounting process rather than compounding process in decision making?)
Brooks (2015 opines that both discounting and compounding process is useful in their own ways. The rational for using discounting rates rather than compounding process is as follows:-

Discounting rate	Compounding rate
It helps to ascertain the percentage of amount to be invested today to get a particular amount in future.	It helps to ascertain the future value of a particular amount invested today.
It is known as the future value of the project	It is known as the present value of the project
Discounting factors are used in order to ascertain discounting rates	Compounding interest rates are used

Table: Difference between discounting rate and compounding rate

From the above table, it can be inferred that discounting rates are more suitable for decision making purpose. An investor will get to know what amount he should invest in order to meet his future long-term goals, which cannot be done while using compounding rate of interest.

Discount rate and main components of the discount rate (why do we use different discount rates for evaluating different decisions?).

Calculation of FV of money

The two basic components of discount rate is risk free rate and weighted average cost of capital. Cost of capital is used in order to calculate different forms of capital budgeting techniques for any particular project. There are different types of discounting rates use for different purpose. In order to ascertain future value of an investment, different discounting rates are used (Brooks 2015).On the other hand, single discounting values are used to ascertain value of future cash flows. On the other various discounting techniques, which are as follows:-

Discounted cash flows
Net Present Value
Internal rate of return

All the above types are suitable for different purposes. Net present value is used to ascertain the excess of future inflows versus outflows. On the other hand, internal rate of return is used to ascertain the rate of return from a particular project. In addition to this, payback period is used to determine the time frame to get back the initial investment amount.

Use of time value in valuation of financial instruments such as bonds, equity and preference shares.

There are various forms of financial instruments of time valuation. These can be in the form of bonds, equity and preference shares. Bonds is generally consider as safe and fixed money market instrument. Equity is considered as a capital market instrument and yields a high rate of interest. On the other hand, preference shares also entitles a shareholder to get a fixed percentage of dividend over a period of time (Faccio, Marchica and Mura 2016). There are several advantages and disadvantages of these financial instruments which can further evaluated with the help of the following table:-

Instruments	Advantages	Disadvantages
Equity	1. High rate of return 2. Limited liability	1. High risk 2. Depends on market fluctuation 3. High volatility
Bonds	1. Low volatility 2. Liquidity is high 3. Less risky investment	1. Reinvestment risk is there 2. Fixed rate of interest which can be lower than market prices 3. The investors will lose their money if the company is declared bankrupt 4. Exchange rate risk is also there
Preference shares	1. Fixed rate of dividend 2. Less risky	1. No voting rights 2. Low rate of return

Table: Advantages and disadvantages of financial instruments

From the above table, it can be inferred that all the given financial instruments have several advantages and disadvantages. It will solely depend upon the investor in which financial instrument he/she will invest. Apart from this, it is choice of the investor whether he will choose risk prone investments and risk free requirements according to the respective aims and objectives (Finnerty 2013).

Capital budgeting and time value.

Delaney, Rich and Rose (2016) defined capital budgeting as the process in which business organizations, especially large business organizations determine the potential expenditure and return on investments which they can face in the future.

Time value of money is important for capital budgeting. There are various factors which affect capital budgeting like time value, discount rates and converting values. Future value and present value is critical in case of capital budgeting.

Using time value of money, an investor can understand the decision of investment in a project in a better manner.

Discounting rate vs. Compounding rate

The graph above compares the values of GBP. EU and JPY against USD. It shows that though GBP and EU value fell in April, both the currencies are showing rising trends compared to USD. JPY is showing also showing an upward trend, but of a higher than EU and GBP. This means firms would have to allocate more amount of money for purchasing products from these markets after May 14, 2015 than they would have incurred around May 8 when all the three currencies showed downward trends against USD. The multinational firms have to take into account factors like exchange rates and future value of as shown in figure 1 and figure 2 while forming budget (Goyat and Nain 2016). From the above analysis, it can be inferred that capital budgeting and time value of money goes side by side.

The other issues

There are various issues or disadvantages associated with time value of money. These can be as follows:-

Calculation of Net Present value is sensitive with discounting rates-Net present value is based on summation of all the respective discounted cash flow of any particular given project. Therefore, any considerable percentage of increase or decrease of discounted cash flows can reflect a wrong value of Net present Value (Brooks 2015).
Cannot use different rates of discounted cash flows-It is true that market rates cannot be same for entire time horizon. It may happen that the risk is more in first year in comparison with the second year. However, capital budgeting techniques of NPV, IRR keeps the discounting rate same for the entire time horizon. This can be considered as another issue of these methods.
Real options are excluded- The calculations of NPV or any capital budgeting technique do not include real options which are there in a respective project. This can be considered as a disadvantage of capital budgeting methods.

These are the disadvantages which are associated with time value of money.

Financial goals of Studebaker

There are several financial goals of Studebaker which are as follows:-

He wants to accumulate as much additional money as he could as he is planning an early retirement in next 20 years or by 2038 at the age of 60.
He had a mortgage which he had to clear within next 20 years
He wanted to accumulate all the funds of the money market into one single life insurance policy.

However, it is not a correct goal. There are few reasons behind it. These reasons are as follows:-

Opportunity costs are not taken into consideration
The annual costs will be 47,145.31 if the excess amount of money market is introduced into one single life insurance policy.
Life insurance would give him only 6 percent interest, however, any long term investment will give him around 7 percent rate of interest.
He should invest in safety funds and try to avoid market risks.

Therefore, the financial goals of Studebaker cannot be considered as effective.

The given return has been calculated by assuming 6 percent return on the total amount invested $550,000. This return is calculated on the basis of accumulation. With the help of this, total accumulated value of the single insurance premium has been calculated.

The below table shows the annual repayment for the given 20 years The total mortgage amount is taken to be $705,000 mortgage and the rate of interest is 9 percent. The annual repayment has been shown with calculations of every year

Date	Interest	Principal	Balance
2018	$42,075	$8,670	$696,330
Jan, 2019	$5,222	$1,121	$695,210
Feb, 2019	$5,214	$1,129	$694,081
Mar, 2019	$5,206	$1,137	$692,943
Apr, 2019	$5,197	$1,146	$691,797
May, 2019	$5,188	$1,155	$690,643
Jun, 2019	$5,180	$1,163	$689,480
Jul, 2019	$5,171	$1,172	$688,308
Aug, 2019	$5,162	$1,181	$687,127
Sep, 2019	$5,153	$1,190	$685,937
Oct, 2019	$5,145	$1,199	$684,739
Nov, 2019	$5,136	$1,208	$683,531
Dec, 2019	$5,126	$1,217	$682,315
2019	$62,101	$14,016	$682,315
Jan, 2020	$5,117	$1,226	$681,089
Feb, 2020	$5,108	$1,235	$679,854
Mar, 2020	$5,099	$1,244	$678,610
Apr, 2020	$5,090	$1,253	$677,356
May, 2020	$5,080	$1,263	$676,093
Jun, 2020	$5,071	$1,272	$674,821
Jul, 2020	$5,061	$1,282	$673,539
Aug, 2020	$5,052	$1,292	$672,248
Sep, 2020	$5,042	$1,301	$670,946
Oct, 2020	$5,032	$1,311	$669,635
Nov, 2020	$5,022	$1,321	$668,315
Dec, 2020	$5,012	$1,331	$666,984
2020	$60,786	$15,331	$666,984
Jan, 2021	$5,002	$1,341	$665,643
Feb, 2021	$4,992	$1,351	$664,292
Mar, 2021	$4,982	$1,361	$662,932
Apr, 2021	$4,972	$1,371	$661,561
May, 2021	$4,962	$1,381	$660,179
Jun, 2021	$4,951	$1,392	$658,787
Jul, 2021	$4,941	$1,402	$657,385
Aug, 2021	$4,930	$1,413	$655,973
Sep, 2021	$4,920	$1,423	$654,549
Oct, 2021	$4,909	$1,434	$653,115
Nov, 2021	$4,898	$1,445	$651,671
Dec, 2021	$4,888	$1,456	$650,215
2021	$59,348	$16,769	$650,215
Jan, 2022	$4,877	$1,466	$648,749
Feb, 2022	$4,866	$1,477	$647,271
Mar, 2022	$4,855	$1,489	$645,783
Apr, 2022	$4,843	$1,500	$644,283
May, 2022	$4,832	$1,511	$642,772
Jun, 2022	$4,821	$1,522	$641,250
Jul, 2022	$4,809	$1,534	$639,716
Aug, 2022	$4,798	$1,545	$638,171
Sep, 2022	$4,786	$1,557	$636,614
Oct, 2022	$4,775	$1,568	$635,046
Nov, 2022	$4,763	$1,580	$633,465
Dec, 2022	$4,751	$1,592	$631,873
2022	$57,775	$18,342	$631,873
Jan, 2023	$4,739	$1,604	$630,269
Feb, 2023	$4,727	$1,616	$628,653
Mar, 2023	$4,715	$1,628	$627,025
Apr, 2023	$4,703	$1,640	$625,385
May, 2023	$4,690	$1,653	$623,732
Jun, 2023	$4,678	$1,665	$622,067
Jul, 2023	$4,666	$1,678	$620,389
Aug, 2023	$4,653	$1,690	$618,699
Sep, 2023	$4,640	$1,703	$616,996
Oct, 2023	$4,627	$1,716	$615,281
Nov, 2023	$4,615	$1,728	$613,552
Dec, 2023	$4,602	$1,741	$611,811
2023	$56,054	$20,062	$611,811
Jan, 2024	$4,589	$1,754	$610,056
Feb, 2024	$4,575	$1,768	$608,289
Mar, 2024	$4,562	$1,781	$606,508
Apr, 2024	$4,549	$1,794	$604,714
May, 2024	$4,535	$1,808	$602,906
Jun, 2024	$4,522	$1,821	$601,085
Jul, 2024	$4,508	$1,835	$599,250
Aug, 2024	$4,494	$1,849	$597,401
Sep, 2024	$4,481	$1,863	$595,538
Oct, 2024	$4,467	$1,877	$593,662
Nov, 2024	$4,452	$1,891	$591,771
Dec, 2024	$4,438	$1,905	$589,867
2024	$54,172	$21,944	$589,867
Jan, 2025	$4,424	$1,919	$587,947
Feb, 2025	$4,410	$1,933	$586,014
Mar, 2025	$4,395	$1,948	$584,066
Apr, 2025	$4,380	$1,963	$582,103
May, 2025	$4,366	$1,977	$580,126
Jun, 2025	$4,351	$1,992	$578,134
Jul, 2025	$4,336	$2,007	$576,127
Aug, 2025	$4,321	$2,022	$574,105
Sep, 2025	$4,306	$2,037	$572,068
Oct, 2025	$4,291	$2,053	$570,015
Nov, 2025	$4,275	$2,068	$567,947
Dec, 2025	$4,260	$2,083	$565,864
2025	$52,114	$24,003	$565,864
Jan, 2026	$4,244	$2,099	$563,765
Feb, 2026	$4,228	$2,115	$561,650
Mar, 2026	$4,212	$2,131	$559,519
Apr, 2026	$4,196	$2,147	$557,372
May, 2026	$4,180	$2,163	$555,210
Jun, 2026	$4,164	$2,179	$553,031
Jul, 2026	$4,148	$2,195	$550,835
Aug, 2026	$4,131	$2,212	$548,623
Sep, 2026	$4,115	$2,228	$546,395
Oct, 2026	$4,098	$2,245	$544,150
Nov, 2026	$4,081	$2,262	$541,888
Dec, 2026	$4,064	$2,279	$539,609
2026	$49,862	$26,255	$539,609
Jan, 2027	$4,047	$2,296	$537,313
Feb, 2027	$4,030	$2,313	$535,000
Mar, 2027	$4,012	$2,331	$532,669
Apr, 2027	$3,995	$2,348	$530,321
May, 2027	$3,977	$2,366	$527,956
Jun, 2027	$3,960	$2,383	$525,572
Jul, 2027	$3,942	$2,401	$523,171
Aug, 2027	$3,924	$2,419	$520,752
Sep, 2027	$3,906	$2,437	$518,314
Oct, 2027	$3,887	$2,456	$515,858
Nov, 2027	$3,869	$2,474	$513,384
Dec, 2027	$3,850	$2,493	$510,892
2027	$47,399	$28,717	$510,892
Jan, 2028	$3,832	$2,511	$508,380
Feb, 2028	$3,813	$2,530	$505,850
Mar, 2028	$3,794	$2,549	$503,301
Apr, 2028	$3,775	$2,568	$500,733
May, 2028	$3,755	$2,588	$498,145
Jun, 2028	$3,736	$2,607	$495,538
Jul, 2028	$3,717	$2,627	$492,911
Aug, 2028	$3,697	$2,646	$490,265
Sep, 2028	$3,677	$2,666	$487,599
Oct, 2028	$3,657	$2,686	$484,913
Nov, 2028	$3,637	$2,706	$482,207
Dec, 2028	$3,617	$2,727	$479,480
2028	$44,706	$31,411	$479,480
Jan, 2029	$3,596	$2,747	$476,733
Feb, 2029	$3,576	$2,768	$473,966
Mar, 2029	$3,555	$2,788	$471,177
Apr, 2029	$3,534	$2,809	$468,368
May, 2029	$3,513	$2,830	$465,538
Jun, 2029	$3,492	$2,852	$462,686
Jul, 2029	$3,470	$2,873	$459,813
Aug, 2029	$3,449	$2,894	$456,919
Sep, 2029	$3,427	$2,916	$454,003
Oct, 2029	$3,405	$2,938	$451,065
Nov, 2029	$3,383	$2,960	$448,105
Dec, 2029	$3,361	$2,982	$445,122
2029	$41,759	$34,358	$445,122
Jan, 2030	$3,338	$3,005	$442,118
Feb, 2030	$3,316	$3,027	$439,091
Mar, 2030	$3,293	$3,050	$436,041
Apr, 2030	$3,270	$3,073	$432,968
May, 2030	$3,247	$3,096	$429,872
Jun, 2030	$3,224	$3,119	$426,753
Jul, 2030	$3,201	$3,142	$423,611
Aug, 2030	$3,177	$3,166	$420,445
Sep, 2030	$3,153	$3,190	$417,255
Oct, 2030	$3,129	$3,214	$414,041
Nov, 2030	$3,105	$3,238	$410,804
Dec, 2030	$3,081	$3,262	$407,541
2030	$38,536	$37,581	$407,541
Jan, 2031	$3,057	$3,287	$404,255
Feb, 2031	$3,032	$3,311	$400,944
Mar, 2031	$3,007	$3,336	$397,608
Apr, 2031	$2,982	$3,361	$394,247
May, 2031	$2,957	$3,386	$390,861
Jun, 2031	$2,931	$3,412	$387,449
Jul, 2031	$2,906	$3,437	$384,012
Aug, 2031	$2,880	$3,463	$380,549
Sep, 2031	$2,854	$3,489	$377,060
Oct, 2031	$2,828	$3,515	$373,545
Nov, 2031	$2,802	$3,541	$370,003
Dec, 2031	$2,775	$3,568	$366,435
2031	$35,011	$41,106	$366,435
Jan, 2032	$2,748	$3,595	$362,840
Feb, 2032	$2,721	$3,622	$359,219
Mar, 2032	$2,694	$3,649	$355,570
Apr, 2032	$2,667	$3,676	$351,893
May, 2032	$2,639	$3,704	$348,190
Jun, 2032	$2,611	$3,732	$344,458
Jul, 2032	$2,583	$3,760	$340,698
Aug, 2032	$2,555	$3,788	$336,910
Sep, 2032	$2,527	$3,816	$333,094
Oct, 2032	$2,498	$3,845	$329,249
Nov, 2032	$2,469	$3,874	$325,376
Dec, 2032	$2,440	$3,903	$321,473
2032	$31,154	$44,962	$321,473
Jan, 2033	$2,411	$3,932	$317,541
Feb, 2033	$2,382	$3,962	$313,579
Mar, 2033	$2,352	$3,991	$309,588
Apr, 2033	$2,322	$4,021	$305,567
May, 2033	$2,292	$4,051	$301,516
Jun, 2033	$2,261	$4,082	$297,434
Jul, 2033	$2,231	$4,112	$293,322
Aug, 2033	$2,200	$4,143	$289,178
Sep, 2033	$2,169	$4,174	$285,004
Oct, 2033	$2,138	$4,206	$280,799
Nov, 2033	$2,106	$4,237	$276,562
Dec, 2033	$2,074	$4,269	$272,293
2033	$26,937	$49,180	$272,293
Jan, 2034	$2,042	$4,301	$267,992
Feb, 2034	$2,010	$4,333	$263,659
Mar, 2034	$1,977	$4,366	$259,293
Apr, 2034	$1,945	$4,398	$254,895
May, 2034	$1,912	$4,431	$250,463
Jun, 2034	$1,878	$4,465	$245,999
Jul, 2034	$1,845	$4,498	$241,501
Aug, 2034	$1,811	$4,532	$236,969
Sep, 2034	$1,777	$4,566	$232,403
Oct, 2034	$1,743	$4,600	$227,803
Nov, 2034	$1,709	$4,635	$223,169
Dec, 2034	$1,674	$4,669	$218,499
2034	$22,323	$53,794	$218,499
Jan, 2035	$1,639	$4,704	$213,795
Feb, 2035	$1,603	$4,740	$209,055
Mar, 2035	$1,568	$4,775	$204,280
Apr, 2035	$1,532	$4,811	$199,469
May, 2035	$1,496	$4,847	$194,622
Jun, 2035	$1,460	$4,883	$189,739
Jul, 2035	$1,423	$4,920	$184,819
Aug, 2035	$1,386	$4,957	$179,862
Sep, 2035	$1,349	$4,994	$174,868
Oct, 2035	$1,312	$5,032	$169,836
Nov, 2035	$1,274	$5,069	$164,767
Dec, 2035	$1,236	$5,107	$159,660
2035	$17,277	$58,840	$159,660
Jan, 2036	$1,197	$5,146	$154,514
Feb, 2036	$1,159	$5,184	$149,330
Mar, 2036	$1,120	$5,223	$144,107
Apr, 2036	$1,081	$5,262	$138,844
May, 2036	$1,041	$5,302	$133,543
Jun, 2036	$1,002	$5,341	$128,201
Jul, 2036	$962	$5,382	$122,820
Aug, 2036	$921	$5,422	$117,398
Sep, 2036	$880	$5,463	$111,935
Oct, 2036	$840	$5,504	$106,431
Nov, 2036	$798	$5,545	$100,887
Dec, 2036	$757	$5,586	$95,300
2036	$11,758	$64,359	$95,300
Jan, 2037	$715	$5,628	$89,672
Feb, 2037	$673	$5,671	$84,001
Mar, 2037	$630	$5,713	$78,288
Apr, 2037	$587	$5,756	$72,532
May, 2037	$544	$5,799	$66,733
Jun, 2037	$501	$5,843	$60,891
Jul, 2037	$457	$5,886	$55,004
Aug, 2037	$413	$5,931	$49,074
Sep, 2037	$368	$5,975	$43,099
Oct, 2037	$323	$6,020	$37,079
Nov, 2037	$278	$6,065	$31,014
Dec, 2037	$233	$6,110	$24,904
2037	$5,720	$70,397	$24,904
Jan, 2038	$187	$6,156	$18,747
Feb, 2038	$141	$6,202	$12,545
Mar, 2038	$94	$6,249	$6,296
Apr, 2038	$47	$6,296	$0
2038	$469	$24,904	$0

In this case, 9 percent mortgage has been taken to find out the loan balance for year 19 and 20. In this case, the 1^st year or the base year has been assumed as 2018. It has been evaluated that at the end of 20^th year, the amount will be zero, while at the end of 19^th Year, the amount will be $474,265 and balance after 20^th year will be $447,804.

Date	Interest	Principal	Balance
Jan, 2018	$5,288	$385	$704,615
Feb, 2018	$5,285	$388	$704,227
Mar, 2018	$5,282	$391	$703,836
Apr, 2018	$5,279	$394	$703,442
May, 2018	$5,276	$397	$703,045
Jun, 2018	$5,273	$400	$702,646
Jul, 2018	$5,270	$403	$702,243
Aug, 2018	$5,267	$406	$701,837
Sep, 2018	$5,264	$409	$701,428
Oct, 2018	$5,261	$412	$701,017
Nov, 2018	$5,258	$415	$700,602
Dec, 2018	$5,255	$418	$700,183
2018	$63,255	$4,817	$700,183
Jan, 2019	$5,251	$421	$699,762
Feb, 2019	$5,248	$424	$699,338
Mar, 2019	$5,245	$428	$698,910
Apr, 2019	$5,242	$431	$698,480
May, 2019	$5,239	$434	$698,046
Jun, 2019	$5,235	$437	$697,608
Jul, 2019	$5,232	$441	$697,168
Aug, 2019	$5,229	$444	$696,724
Sep, 2019	$5,225	$447	$696,277
Oct, 2019	$5,222	$451	$695,826
Nov, 2019	$5,219	$454	$695,372
Dec, 2019	$5,215	$457	$694,915
2019	$62,803	$5,268	$694,915
Jan, 2020	$5,212	$461	$694,454
Feb, 2020	$5,208	$464	$693,990
Mar, 2020	$5,205	$468	$693,523
Apr, 2020	$5,201	$471	$693,051
May, 2020	$5,198	$475	$692,577
Jun, 2020	$5,194	$478	$692,098
Jul, 2020	$5,191	$482	$691,617
Aug, 2020	$5,187	$485	$691,131
Sep, 2020	$5,183	$489	$690,642
Oct, 2020	$5,180	$493	$690,149
Nov, 2020	$5,176	$496	$689,653
Dec, 2020	$5,172	$500	$689,153
2020	$62,309	$5,763	$689,153
Jan, 2021	$5,169	$504	$688,649
Feb, 2021	$5,165	$508	$688,141
Mar, 2021	$5,161	$512	$687,629
Apr, 2021	$5,157	$515	$687,114
May, 2021	$5,153	$519	$686,595
Jun, 2021	$5,149	$523	$686,072
Jul, 2021	$5,146	$527	$685,545
Aug, 2021	$5,142	$531	$685,014
Sep, 2021	$5,138	$535	$684,479
Oct, 2021	$5,134	$539	$683,940
Nov, 2021	$5,130	$543	$683,396
Dec, 2021	$5,125	$547	$682,849
2021	$61,768	$6,303	$682,849
Jan, 2022	$5,121	$551	$682,298
Feb, 2022	$5,117	$555	$681,743
Mar, 2022	$5,113	$560	$681,183
Apr, 2022	$5,109	$564	$680,620
May, 2022	$5,105	$568	$680,052
Jun, 2022	$5,100	$572	$679,479
Jul, 2022	$5,096	$576	$678,903
Aug, 2022	$5,092	$581	$678,322
Sep, 2022	$5,087	$585	$677,737
Oct, 2022	$5,083	$590	$677,147
Nov, 2022	$5,079	$594	$676,553
Dec, 2022	$5,074	$598	$675,955
2022	$61,177	$6,894	$675,955
Jan, 2023	$5,070	$603	$675,352
Feb, 2023	$5,065	$607	$674,745
Mar, 2023	$5,061	$612	$674,133
Apr, 2023	$5,056	$617	$673,516
May, 2023	$5,051	$621	$672,895
Jun, 2023	$5,047	$626	$672,269
Jul, 2023	$5,042	$631	$671,638
Aug, 2023	$5,037	$635	$671,003
Sep, 2023	$5,033	$640	$670,363
Oct, 2023	$5,028	$645	$669,718
Nov, 2023	$5,023	$650	$669,068
Dec, 2023	$5,018	$655	$668,414
2023	$60,530	$7,541	$668,414
Jan, 2024	$5,013	$659	$667,754
Feb, 2024	$5,008	$664	$667,090
Mar, 2024	$5,003	$669	$666,420
Apr, 2024	$4,998	$674	$665,746
May, 2024	$4,993	$679	$665,067
Jun, 2024	$4,988	$685	$664,382
Jul, 2024	$4,983	$690	$663,692
Aug, 2024	$4,978	$695	$662,997
Sep, 2024	$4,972	$700	$662,297
Oct, 2024	$4,967	$705	$661,592
Nov, 2024	$4,962	$711	$660,881
Dec, 2024	$4,957	$716	$660,165
2024	$59,822	$8,249	$660,165
Jan, 2025	$4,951	$721	$659,444
Feb, 2025	$4,946	$727	$658,717
Mar, 2025	$4,940	$732	$657,985
Apr, 2025	$4,935	$738	$657,247
May, 2025	$4,929	$743	$656,504
Jun, 2025	$4,924	$749	$655,755
Jul, 2025	$4,918	$754	$655,001
Aug, 2025	$4,913	$760	$654,241
Sep, 2025	$4,907	$766	$653,475
Oct, 2025	$4,901	$772	$652,703
Nov, 2025	$4,895	$777	$651,926
Dec, 2025	$4,889	$783	$651,143
2025	$59,049	$9,022	$651,143
Jan, 2026	$4,884	$789	$650,354
Feb, 2026	$4,878	$795	$649,559
Mar, 2026	$4,872	$801	$648,758
Apr, 2026	$4,866	$807	$647,951
May, 2026	$4,860	$813	$647,138
Jun, 2026	$4,854	$819	$646,319
Jul, 2026	$4,847	$825	$645,494
Aug, 2026	$4,841	$831	$644,663
Sep, 2026	$4,835	$838	$643,825
Oct, 2026	$4,829	$844	$642,981
Nov, 2026	$4,822	$850	$642,131
Dec, 2026	$4,816	$857	$641,274
2026	$58,202	$9,869	$641,274
Jan, 2027	$4,810	$863	$640,411
Feb, 2027	$4,803	$870	$639,542
Mar, 2027	$4,797	$876	$638,666
Apr, 2027	$4,790	$883	$637,783
May, 2027	$4,783	$889	$636,894
Jun, 2027	$4,777	$896	$635,998
Jul, 2027	$4,770	$903	$635,095
Aug, 2027	$4,763	$909	$634,186
Sep, 2027	$4,756	$916	$633,270
Oct, 2027	$4,750	$923	$632,347
Nov, 2027	$4,743	$930	$631,417
Dec, 2027	$4,736	$937	$630,480
2027	$57,277	$10,794	$630,480
Jan, 2028	$4,729	$944	$629,536
Feb, 2028	$4,722	$951	$628,585
Mar, 2028	$4,714	$958	$627,626
Apr, 2028	$4,707	$965	$626,661
May, 2028	$4,700	$973	$625,688
Jun, 2028	$4,693	$980	$624,708
Jul, 2028	$4,685	$987	$623,721
Aug, 2028	$4,678	$995	$622,727
Sep, 2028	$4,670	$1,002	$621,724
Oct, 2028	$4,663	$1,010	$620,715
Nov, 2028	$4,655	$1,017	$619,697
Dec, 2028	$4,648	$1,025	$618,673
2028	$56,264	$11,807	$618,673
Jan, 2029	$4,640	$1,033	$617,640
Feb, 2029	$4,632	$1,040	$616,600
Mar, 2029	$4,624	$1,048	$615,552
Apr, 2029	$4,617	$1,056	$614,496
May, 2029	$4,609	$1,064	$613,432
Jun, 2029	$4,601	$1,072	$612,360
Jul, 2029	$4,593	$1,080	$611,280
Aug, 2029	$4,585	$1,088	$610,192
Sep, 2029	$4,576	$1,096	$609,096
Oct, 2029	$4,568	$1,104	$607,992
Nov, 2029	$4,560	$1,113	$606,879
Dec, 2029	$4,552	$1,121	$605,758
2029	$55,156	$12,915	$605,758
Jan, 2030	$4,543	$1,129	$604,629
Feb, 2030	$4,535	$1,138	$603,491
Mar, 2030	$4,526	$1,146	$602,344
Apr, 2030	$4,518	$1,155	$601,189
May, 2030	$4,509	$1,164	$600,026
Jun, 2030	$4,500	$1,172	$598,853
Jul, 2030	$4,491	$1,181	$597,672
Aug, 2030	$4,483	$1,190	$596,482
Sep, 2030	$4,474	$1,199	$595,283
Oct, 2030	$4,465	$1,208	$594,075
Nov, 2030	$4,456	$1,217	$592,858
Dec, 2030	$4,446	$1,226	$591,632
2030	$53,945	$14,126	$591,632
Jan, 2031	$4,437	$1,235	$590,397
Feb, 2031	$4,428	$1,245	$589,152
Mar, 2031	$4,419	$1,254	$587,898
Apr, 2031	$4,409	$1,263	$586,635
May, 2031	$4,400	$1,273	$585,362
Jun, 2031	$4,390	$1,282	$584,079
Jul, 2031	$4,381	$1,292	$582,787
Aug, 2031	$4,371	$1,302	$581,486
Sep, 2031	$4,361	$1,311	$580,174
Oct, 2031	$4,351	$1,321	$578,853
Nov, 2031	$4,341	$1,331	$577,522
Dec, 2031	$4,331	$1,341	$576,181
2031	$52,620	$15,451	$576,181
Jan, 2032	$4,321	$1,351	$574,829
Feb, 2032	$4,311	$1,361	$573,468
Mar, 2032	$4,301	$1,372	$572,096
Apr, 2032	$4,291	$1,382	$570,715
May, 2032	$4,280	$1,392	$569,322
Jun, 2032	$4,270	$1,403	$567,920
Jul, 2032	$4,259	$1,413	$566,506
Aug, 2032	$4,249	$1,424	$565,083
Sep, 2032	$4,238	$1,434	$563,648
Oct, 2032	$4,227	$1,445	$562,203
Nov, 2032	$4,217	$1,456	$560,747
Dec, 2032	$4,206	$1,467	$559,280
2032	$51,170	$16,901	$559,280
Jan, 2033	$4,195	$1,478	$557,802
Feb, 2033	$4,184	$1,489	$556,313
Mar, 2033	$4,172	$1,500	$554,813
Apr, 2033	$4,161	$1,511	$553,301
May, 2033	$4,150	$1,523	$551,778
Jun, 2033	$4,138	$1,534	$550,244
Jul, 2033	$4,127	$1,546	$548,698
Aug, 2033	$4,115	$1,557	$547,141
Sep, 2033	$4,104	$1,569	$545,572
Oct, 2033	$4,092	$1,581	$543,991
Nov, 2033	$4,080	$1,593	$542,398
Dec, 2033	$4,068	$1,605	$540,794
2033	$49,585	$18,486	$540,794
Jan, 2034	$4,056	$1,617	$539,177
Feb, 2034	$4,044	$1,629	$537,548
Mar, 2034	$4,032	$1,641	$535,907
Apr, 2034	$4,019	$1,653	$534,254
May, 2034	$4,007	$1,666	$532,589
Jun, 2034	$3,994	$1,678	$530,910
Jul, 2034	$3,982	$1,691	$529,220
Aug, 2034	$3,969	$1,703	$527,516
Sep, 2034	$3,956	$1,716	$525,800
Oct, 2034	$3,943	$1,729	$524,071
Nov, 2034	$3,931	$1,742	$522,329
Dec, 2034	$3,917	$1,755	$520,574
2034	$47,851	$20,220	$520,574
Jan, 2035	$3,904	$1,768	$518,805
Feb, 2035	$3,891	$1,782	$517,024
Mar, 2035	$3,878	$1,795	$515,229
Apr, 2035	$3,864	$1,808	$513,421
May, 2035	$3,851	$1,822	$511,599
Jun, 2035	$3,837	$1,836	$509,763
Jul, 2035	$3,823	$1,849	$507,914
Aug, 2035	$3,809	$1,863	$506,050
Sep, 2035	$3,795	$1,877	$504,173
Oct, 2035	$3,781	$1,891	$502,282
Nov, 2035	$3,767	$1,905	$500,376
Dec, 2035	$3,753	$1,920	$498,457
2035	$45,954	$22,117	$498,457
Jan, 2036	$3,738	$1,934	$496,522
Feb, 2036	$3,724	$1,949	$494,574
Mar, 2036	$3,709	$1,963	$492,611
Apr, 2036	$3,695	$1,978	$490,632
May, 2036	$3,680	$1,993	$488,640
Jun, 2036	$3,665	$2,008	$486,632
Jul, 2036	$3,650	$2,023	$484,609
Aug, 2036	$3,635	$2,038	$482,571
Sep, 2036	$3,619	$2,053	$480,518
Oct, 2036	$3,604	$2,069	$478,449
Nov, 2036	$3,588	$2,084	$476,365
Dec, 2036	$3,573	$2,100	$474,265
2036	$43,879	$24,192	$474,265
Jan, 2037	$3,557	$2,116	$472,149
Feb, 2037	$3,541	$2,131	$470,018
Mar, 2037	$3,525	$2,147	$467,870
Apr, 2037	$3,509	$2,164	$465,707
May, 2037	$3,493	$2,180	$463,527
Jun, 2037	$3,476	$2,196	$461,331
Jul, 2037	$3,460	$2,213	$459,118
Aug, 2037	$3,443	$2,229	$456,889
Sep, 2037	$3,427	$2,246	$454,643
Oct, 2037	$3,410	$2,263	$452,380
Nov, 2037	$3,393	$2,280	$450,101
Dec, 2037	$3,376	$2,297	$447,804
2037	$41,610	$26,461	$447,804

As per exhibit 3, it has been seen that accumulated funds after 20 years insurance policy will grew to $1,763,925. However, this amount does not reflect actual accumulated amount of investment. The total amount of annual cost of insurance is $26,145.31. The total costs incurred will be $522,906.22. Due to this reason, the debt position of Studebaker will be ($1,241,018.78) at the end of the 20^th year. However, since the excess amount of $300000 is invested, then the figure of annual costs cannot be considered true. Apart from this, in that case, the annual costs will also increase. Therefore, the correct accumulated table is as follows:-

			Increase in Accumulation Value
	Policy Payment	Accumulation Value	Annual Cost”	Cumulative Cost
End of Year

0	$550,000
1		$588,500	$38,500	$47,145.31	$47,145.31
2		$629,695	$41,195	$47,145.31	$94,290.62
3		$673,774	$44,079	$47,145.31	$141,435.93
4		$720,938	$47,164	$47,145.31	$188,581.24
5		$771,403	$50,466	$47,145.31	$235,726.55
6		$825,402	$53,998	$47,145.31	$282,871.86
7		$883,180	$57,778	$47,145.31	$330,017.17
8		$945,002	$61,823	$47,145.31	$377,162.48
9		$1,011,153	$66,150	$47,145.31	$424,307.79
10		$1,081,933	$70,781	$47,145.31	$471,453.10
11		$1,157,669	$75,735	$47,145.31	$518,598.41
12		$1,238,705	$81,037	$47,145.31	$565,743.72
13		$1,325,415	$86,709	$47,145.31	$612,889.03
14		$1,418,194	$92,779	$47,145.31	$660,034.34
15		$1,517,467	$99,274	$47,145.31	$707,179.65
16		$1,623,690	$106,223	$47,145.31	$754,324.96
17		$1,737,348	$113,658	$47,145.31	$801,470.27
18		$1,858,963	$121,614	$47,145.31	$848,615.58
19		$1,989,090	$130,127	$47,145.31	$895,760.89
20		$2,128,326	$139,236	$47,145.31	$942,906.20

Types of discounting rates

Therefore, from the above table, it can be inferred that the excess amount earned is $1,578,326 and the considering the costs, the total accumulated funds earned is $635,420.25.

Excess amount	$1,578,326
Fund Value less costs	$635,420.25

However, considering the hidden costs, the net present value is coming to be ($8,723.59), which is negative.

If the excess $300,000 is invested, then the calculation of the accumulated value can be evaluated with the help of the following table:-

			Increase in Accumulation Value
	Policy Payment	Accumulation Value
End of Year

0	$300,000
1		$321,000	$21,000
2		$343,470	$22,470
3		$367,513	$24,043
4		$393,239	$25,726
5		$420,766	$27,527
6		$450,219	$29,454
7		$481,734	$31,515
8		$515,456	$33,721
9		$551,538	$36,082
10		$590,145	$38,608
11		$631,456	$41,310
12		$675,657	$44,202
13		$722,954	$47,296
14		$773,560	$50,607
15		$827,709	$54,149
16		$885,649	$57,940
17		$947,645	$61,995
18		$1,013,980	$66,335
19		$1,084,958	$70,979
20		$1,160,905	$75,947

From the above table, it can be inferred the total accumulated value will be $1,160,905 and the excess amount earned will be $860,905 and the Net Present Value will be $52,323.04.

The total amount of Accumulated fund by placing $26,145.31in 8 percent for 20 years can be evaluated with the help of the following table:-

			Increase in Accumulation Value
	Policy Payment	Accumulation Value
End of Year

0	26,145.31
1		$27,975	$1,830
2		$29,934	$1,958
3		$32,029	$2,095
4		$34,271	$2,242
5		$36,670	$2,399
6		$39,237	$2,567
7		$41,984	$2,747
8		$44,923	$2,939
9		$48,067	$3,145
10		$51,432	$3,365
11		$55,032	$3,600
12		$58,884	$3,852
13		$63,006	$4,122
14		$67,417	$4,410
15		$72,136	$4,719
16		$77,185	$5,050
17		$82,588	$5,403
18		$88,369	$5,781
19		$94,555	$6,186
20		$101,174	$6,619

The total amount of accumulate fund will be $101,174 and total amount of increase value will be $75,028.79

If 7 percent return is assumed to be earned, in that case, total accumulated value will be $2,128,326. Apart from this, the exact amount of increase in accumulated value will be $139,236.

			Increase in Accumulation Value
	Policy Payment	Accumulation Value	Annual Cost”	Cumulative Cost
End of Year

0	$550,000
1		$588,500	$38,500	$26,145.31	$26,145.31
2		$629,695	$41,195	$26,145.31	$52,290.62
3		$673,774	$44,079	$26,145.31	$78,435.93
4		$720,938	$47,164	$26,145.31	$104,581.24
5		$771,403	$50,466	$26,145.31	$130,726.56
6		$825,402	$53,998	$26,145.31	$156,871.87
7		$883,180	$57,778	$26,145.31	$183,017.18
8		$945,002	$61,823	$26,145.31	$209,162.49
9		$1,011,153	$66,150	$26,145.31	$235,307.80
10		$1,081,933	$70,781	$26,145.31	$261,453.11
11		$1,157,669	$75,735	$26,145.31	$287,598.42
12		$1,238,705	$81,037	$26,145.31	$313,743.73
13		$1,325,415	$86,709	$26,145.31	$339,889.04
14		$1,418,194	$92,779	$26,145.31	$366,034.36
15		$1,517,467	$99,274	$26,145.31	$392,179.67
16		$1,623,690	$106,223	$26,145.31	$418,324.98
17		$1,737,348	$113,658	$26,145.31	$444,470.29
18		$1,858,963	$121,614	$26,145.31	$470,615.60
19		$1,989,090	$130,127	$26,145.31	$496,760.91
20		$2,128,326	$139,236	$26,145.31	$522,906.22
	Net present Value		$158,529.24

From the above analysis, it can be inferred that single-premium life insurance policy is an unattractive investment for Studebaker. There are several reasons behind it. Firstly, if the excess $300,000 is invested into the insurance policy, then the total annual costs will increase to $47,145.31. In that case, the total savings of Studebaker at the end of 20 years will be $635,420.25. On the other hand, if the excess amount of $300,000 is invested, then the excess of accumulated value will be more than which is $860,905.

			Increase in Accumulation Value
	Policy Payment	Accumulation Value	Annual Cost”	Cumulative Cost
End of Year

0	$300,000
1		$324,000	$24,000	$26,145.31	$26,145.31	($2,145.31)
2		$346,680	$22,680	$26,145.31	$52,290.62	($3,465.31)
3		$370,948	$24,268	$26,145.31	$78,435.93	($1,877.71)
4		$396,914	$25,966	$26,145.31	$104,581.24	($178.98)
5		$424,698	$27,784	$26,145.31	$130,726.56	$1,638.67
6		$454,427	$29,729	$26,145.31	$156,871.87	$3,583.54
7		$486,237	$31,810	$26,145.31	$183,017.18	$5,664.56
8		$520,273	$34,037	$26,145.31	$209,162.49	$7,891.25
9		$556,692	$36,419	$26,145.31	$235,307.80	$10,273.81
10		$595,661	$38,968	$26,145.31	$261,453.11	$12,823.15
11		$637,357	$41,696	$26,145.31	$287,598.42	$15,550.94
12		$681,972	$44,615	$26,145.31	$313,743.73	$18,469.68
13		$729,710	$47,738	$26,145.31	$339,889.04	$21,592.73
14		$780,790	$51,080	$26,145.31	$366,034.36	$24,934.40
15		$835,445	$54,655	$26,145.31	$392,179.67	$28,509.97
16		$893,926	$58,481	$26,145.31	$418,324.98	$32,335.84
17		$956,501	$62,575	$26,145.31	$444,470.29	$36,429.53
18		$1,023,456	$66,955	$26,145.31	$470,615.60	$40,809.76
19		$1,095,098	$71,642	$26,145.31	$496,760.91	$45,496.62
20		$1,171,755	$76,657	$26,145.31	$522,906.22	$50,511.55
21		$1,253,778	$82,023	$26,145.31	$522,906.22	$55,877.53
22		$1,341,542	$87,764	$26,145.31	$522,906.22	$61,619.13
23		$1,435,450	$93,908	$26,145.31	$522,906.22	$67,762.64
24		$1,535,932	$100,482	$26,145.31	$522,906.22	$74,336.20
25		$1,643,447	$107,515	$26,145.31	$522,906.22	$81,369.91
26		$1,758,488	$115,041	$26,145.31	$522,906.22	$88,895.97
27		$1,881,582	$123,094	$26,145.31	$522,906.22	$96,948.86
28		$2,013,293	$131,711	$26,145.31	$522,906.22	$105,565.45
29		$2,154,224	$140,931	$26,145.31	$522,906.22	$114,785.21
30		$2,305,019	$150,796	$26,145.31	$522,906.22	$124,650.34
				Savings annually	a	$4,155.01
				Savings till 1-12 years	b	$10,387.53

From the above table, it can be inferred that, the total annual savings need to be $4,155.01. It has been seen that, the annual cost of insurance is fixed to $26,145.31. However, there is variable increase in accumulated value of the investment. Total increase of accumulated value is $150,796 and total annual costs is $522,906.22. Therefore, total savings needs to be $124,650.34. Therefore, per year savings will be coming to be $4,155.01.

The below table shows that the monthly payments on the new 30-year of $705,000.

Date	Interest	Principal	Balance
Jan, 2018	$5,720	$330	$704,670
Feb, 2018	$5,717	$333	$704,338
Mar, 2018	$5,715	$335	$704,002
Apr, 2018	$5,712	$338	$703,664
May, 2018	$5,709	$341	$703,324
Jun, 2018	$5,706	$343	$702,980
Jul, 2018	$5,704	$346	$702,634
Aug, 2018	$5,701	$349	$702,285
Sep, 2018	$5,698	$352	$701,933
Oct, 2018	$5,695	$355	$701,578
Nov, 2018	$5,692	$358	$701,220
Dec, 2018	$5,689	$361	$700,860
2018	$68,457	$4,140	$700,860
Jan, 2019	$5,686	$363	$700,496
Feb, 2019	$5,683	$366	$700,130
Mar, 2019	$5,680	$369	$699,760
Apr, 2019	$5,677	$372	$699,388
May, 2019	$5,674	$375	$699,013
Jun, 2019	$5,671	$378	$698,634
Jul, 2019	$5,668	$382	$698,253
Aug, 2019	$5,665	$385	$697,868
Sep, 2019	$5,662	$388	$697,480
Oct, 2019	$5,659	$391	$697,089
Nov, 2019	$5,656	$394	$696,695
Dec, 2019	$5,653	$397	$696,298
2019	$68,036	$4,562	$696,298
Jan, 2020	$5,649	$400	$695,898
Feb, 2020	$5,646	$404	$695,494
Mar, 2020	$5,643	$407	$695,087
Apr, 2020	$5,639	$410	$694,676
May, 2020	$5,636	$414	$694,263
Jun, 2020	$5,633	$417	$693,846
Jul, 2020	$5,629	$420	$693,425
Aug, 2020	$5,626	$424	$693,002
Sep, 2020	$5,623	$427	$692,574
Oct, 2020	$5,619	$431	$692,144
Nov, 2020	$5,616	$434	$691,709
Dec, 2020	$5,612	$438	$691,272
2020	$67,571	$5,026	$691,272
Jan, 2021	$5,609	$441	$690,830
Feb, 2021	$5,605	$445	$690,386
Mar, 2021	$5,601	$448	$689,937
Apr, 2021	$5,598	$452	$689,485
May, 2021	$5,594	$456	$689,029
Jun, 2021	$5,590	$459	$688,570
Jul, 2021	$5,587	$463	$688,107
Aug, 2021	$5,583	$467	$687,640
Sep, 2021	$5,579	$471	$687,169
Oct, 2021	$5,575	$475	$686,694
Nov, 2021	$5,571	$478	$686,216
Dec, 2021	$5,567	$482	$685,734
2021	$67,059	$5,538	$685,734
Jan, 2022	$5,564	$486	$685,247
Feb, 2022	$5,560	$490	$684,757
Mar, 2022	$5,556	$494	$684,263
Apr, 2022	$5,552	$498	$683,765
May, 2022	$5,548	$502	$683,263
Jun, 2022	$5,544	$506	$682,757
Jul, 2022	$5,539	$510	$682,246
Aug, 2022	$5,535	$515	$681,732
Sep, 2022	$5,531	$519	$681,213
Oct, 2022	$5,527	$523	$680,690
Nov, 2022	$5,523	$527	$680,163
Dec, 2022	$5,518	$531	$679,632
2022	$66,495	$6,102	$679,632
Jan, 2023	$5,514	$536	$679,096
Feb, 2023	$5,510	$540	$678,556
Mar, 2023	$5,505	$544	$678,011
Apr, 2023	$5,501	$549	$677,463
May, 2023	$5,496	$553	$676,909
Jun, 2023	$5,492	$558	$676,351
Jul, 2023	$5,487	$562	$675,789
Aug, 2023	$5,483	$567	$675,222
Sep, 2023	$5,478	$571	$674,651
Oct, 2023	$5,474	$576	$674,075
Nov, 2023	$5,469	$581	$673,494
Dec, 2023	$5,464	$586	$672,908
2023	$65,874	$6,723	$672,908
Jan, 2024	$5,460	$590	$672,318
Feb, 2024	$5,455	$595	$671,723
Mar, 2024	$5,450	$600	$671,123
Apr, 2024	$5,445	$605	$670,518
May, 2024	$5,440	$610	$669,909
Jun, 2024	$5,435	$615	$669,294
Jul, 2024	$5,430	$620	$668,675
Aug, 2024	$5,425	$625	$668,050
Sep, 2024	$5,420	$630	$667,420
Oct, 2024	$5,415	$635	$666,785
Nov, 2024	$5,410	$640	$666,145
Dec, 2024	$5,405	$645	$665,500
2024	$65,190	$7,408	$665,500
Jan, 2025	$5,399	$650	$664,850
Feb, 2025	$5,394	$656	$664,194
Mar, 2025	$5,389	$661	$663,533
Apr, 2025	$5,383	$666	$662,867
May, 2025	$5,378	$672	$662,195
Jun, 2025	$5,373	$677	$661,518
Jul, 2025	$5,367	$683	$660,835
Aug, 2025	$5,362	$688	$660,147
Sep, 2025	$5,356	$694	$659,453
Oct, 2025	$5,350	$699	$658,754
Nov, 2025	$5,345	$705	$658,049
Dec, 2025	$5,339	$711	$657,338
2025	$64,435	$8,162	$657,338
Jan, 2026	$5,333	$717	$656,622
Feb, 2026	$5,327	$722	$655,899
Mar, 2026	$5,322	$728	$655,171
Apr, 2026	$5,316	$734	$654,437
May, 2026	$5,310	$740	$653,697
Jun, 2026	$5,304	$746	$652,950
Jul, 2026	$5,298	$752	$652,198
Aug, 2026	$5,292	$758	$651,440
Sep, 2026	$5,285	$764	$650,676
Oct, 2026	$5,279	$771	$649,905
Nov, 2026	$5,273	$777	$649,128
Dec, 2026	$5,267	$783	$648,345
2026	$63,604	$8,993	$648,345
Jan, 2027	$5,260	$790	$647,555
Feb, 2027	$5,254	$796	$646,759
Mar, 2027	$5,247	$802	$645,957
Apr, 2027	$5,241	$809	$645,148
May, 2027	$5,234	$815	$644,332
Jun, 2027	$5,228	$822	$643,510
Jul, 2027	$5,221	$829	$642,682
Aug, 2027	$5,214	$836	$641,846
Sep, 2027	$5,208	$842	$641,004
Oct, 2027	$5,201	$849	$640,155
Nov, 2027	$5,194	$856	$639,299
Dec, 2027	$5,187	$863	$638,436
2027	$62,688	$9,909	$638,436
2047	$3,688	$68,910	$0

From the above analysis, it can be inferred that none of the monthly payments will be equal to $68,622. However, in case of 1^st year, the total year payment is coming to be $68,457, which is summation of all the monthly for that particular year.

The total annual of $47,145.31in year 1 and $170,502.31 by year 20 is coming while considering the excess of $300,000. The loss amount considering 7 percent of $300,000 is added to the amount $26,145.31 is taken into consideration. In this manner, it was determined.

The strategies undertaken by Morton can be evaluated with the help of the following points:-

Separate amount of $300,000 of money market will be invested at 7 percent interest
Safety long term policy is completely ignored
Tax sheltered investment has also been ignored

These loopholes are there in the strategies undertaken by Morton

There are several recommendations that can be given based on the information. These are as follows:-

The excess amount of $300,000 needs to be invested in bonds which can be considered as a fixed income policy and safe as well. The average return is expected to be more than 6 percent as well. This investment is of long term purpose and will serve the requirements of
Few portion of equity amount can be deposited to savings account for safety purpose
Studebaker needs to invest more amount in money market instruments for safety purpose.

These are the recommendations that can be given to Studebaker.

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