Time Value

  1. Assume that this year, the average wedding cost $25,000. Assuming 4%
    inflation, what will it cost in 30 years?
  2. At what rate must money be invested to double the money over a 10 year time
    frame?
  3. Suppose you need $10,000 in two years for the down payment on a new car. If
    you can earn 7% annually, how much do you need to invest today?
  4. You want to begin saving for your daughter’s college education and you
    estimate that she will need $150,000 in 17 years. If you feel confident that you
    can earn 8% compounded semiannually, how much do you need to invest today?
  5. You are considering an investment that will pay you $1,000 in one year, $2,000
    in two years and $3,000 in three years. If you want to earn 10% on your money,
    how much would you be willing to pay?
  6. What is the present value of the 25 annual payments of $50,000 offered to a
    soon-to-be ex-spouse, assuming a 5% discount rate?
  7. Assuming $2000 annual contributions earn a 9% return, how much will an
    Individual Retirement Account (IRA) be worth in 30 years?
  8. Suppose you begin saving for your retirement by depositing $2,000 per year in
    an IRA starting at the end of the year. If the interest rate is 7.5%, how much will
    you have in 40 years?
  9. You are saving for a new house and you put $10,000 per year in an account
    paying 8%. The first payment is made today. How much will you have at the end
    of 3 years?
  10. You are renting a storage warehouse for 6 years. The rent is $6,000 per year
    payable at the beginning of each year. You want to set aside the money
    necessary to meet these payments. If the money you deposit in the payment
    account earns 9% compounded annually, how much do you have to deposit in the
    account?
  11. To purchase a new boat, you agree to pay the owner each year at the
    beginning of the year for five years. The boat will cost you $25,000. If you agree
    to a loan rate of 10% for the right to buy the boat in payments rather than in one
    lump sum, how much are your annual payments?
  12. If the present value of an investment is $78.35 and the future value is $100,
    how long was the investment invested if the rate earned was 5%?
  13. If the present value of a six (6) year investment is $95.00 and the future value
    is $145, what rate is being earned?
  14. If an investment increased in value from $30,000 to $80,000 in 5 years, what
    was the annual compounded rate of growth?
  15. What is the present value of a perpetuity of $5,000 invested at a rate of
    12%?
  16. Your cousin has just invested in a consul bond that promises to pay $200 per
    year into perpetuity. She would like to know the final ending value of the bond.
  17. What is the effective annual rate of interest on your credit card if the nominal
    rate is 18% per year, compounded monthly?
  18. You are looking at two savings accounts. One pays 5.25%, with quarterly
    compounding. The other pays 5.30% with semiannual compounding. Which
    account should you use?
  19. If you deposit $300 today, what is the future value of the deposit five years
    from now with 8% interest compounded quarterly?
  20. What is the PV of $100 one year from now with 12% interest compounded
    monthly?
  21. What is the future value of $100 invested at the end of each year for three
    years if the money is invested at 12% interest compounded quarterly?
  22. What is the present value of $500 invested at the end of each year for four (4)
    years if the money is invested at 8% interest compounded quarterly?
  23. How long must you leave $5,000 invested at 6% compounded semiannually
    for the investment to grow to $10,000?
  24. What is the table factor that you would find on the present value of a $1
    Annuity for 30 years and 6.5% compounded monthly?
  25. If you invest $11,000 in a mutual fund today, and it grows to be $50,000 after
    8 years, what compound annual rate of return did you earn?
  26. Find the compound value of a $125, ten-year ordinary annuity at 6 percent
    annual interest if the payment at the end of year 6 is omitted.
    $125 $125 $125 $125 $125 $125 $125 $125 $125
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  1. A father is planning to provide a 20-year trust fund for his son Dominic. The
    amount deposited today will remain untouched until the end of the 20th year, but
    will gain interest at a rate of 8 percent compounded annually. The money will
    then be transferred to another account, which pays 6 percent. The intent is that
    Dominic will withdraw the money in six equal annual payments of $4,000 each
    beginning at the end of year 20. The fund, which will help to pay for his higher
    education will be completely depleted after six payments. What amount should
    Dominic’s father deposit today?
    $4,000 $4,000 $4,000 $4,000 $4,000 $4,000
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0……………………………..20 21 22 23 24 25 26

  1. You have borrowed $10,000 at 9%. Your lender requires annual payments
    over a four-year period. Identify the amount of each payment.
  2. You have borrowed $10,000 at 9%. Your lender requires annual payments
    over a four year period. Create an amortization table for your loan. Use the
    payment determined in question number 28.
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