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Time Value of Money Problems:: 8. You Invest $10,000. During The First Year The Investment Earned 20%

This document contains examples of time value of money problems involving present and future value calculations for investments earning interest at various annual rates. It includes problems related to determining the value of a lump sum investment after a specified number of years, calculating the future or present value of annuity payments, computing internal rates of return, and determining periodic deposit amounts needed to achieve a target future value.

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UmerMajeed
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189 views

Time Value of Money Problems:: 8. You Invest $10,000. During The First Year The Investment Earned 20%

This document contains examples of time value of money problems involving present and future value calculations for investments earning interest at various annual rates. It includes problems related to determining the value of a lump sum investment after a specified number of years, calculating the future or present value of annuity payments, computing internal rates of return, and determining periodic deposit amounts needed to achieve a target future value.

Uploaded by

UmerMajeed
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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TIME VALUE OF MONEY PROBLEMS:

1. Find the value of $10,000 earning 5% interest per year after two years.
2. Find the value of $10,000 in 10 years. The investment earns 5% per
year.
3. Find the value of $10,000 in 10 years. The investment earns 8% for
four years and then earns 4% for the remaining six years.
4. How much do I need to invest at 8% per year, in order to have $10,000
in
one year
two years
ten years
5. An investor deposits $10,000. Ten years later it is worth $17,910. What rate
of return did the investor earn on the investment?

6. Find the present value of $10,000 to be received at the end of 10


periods at 8% per period.
7. Today your stock is worth $50,000. You invested $5,000 in the stock
18 years ago. What average annual rate of return [i] did you earn on
your investment?
8. You invest $10,000. During the first year the investment earned 20%
for the year. During the second year, you earned only 4% for that year.
How much is your original deposit worth at the end of the two years?
Frequency of Compounding
1. How much must you deposit today in a bank account paying interest
compounded quarterly:
if you wish to have $10,000 at the end of 3 months, if the bank pays
5.0% APR?
Answer: $9,877
if you wish to have $50,000 at the end of 24months, if the bank pays
8.0%APR?
Answer: $42,675
if you wish to have $6,000 at the end of 12 months, if the bank pays
9.0% APR?

Answer: $5,489
2. What rate of interest [APR] is the bank charging you if you borrow $49,000
and must repay $50,000 at the end of 3 months, if interest is compounded
monthly?
Answer:
8.0%
3. How much must you deposit today in a bank account paying interest
compounded monthly:
a. if you wish to have: $10,000 at the end of 1 months, if the bank pays 5.0%
APR ?
Answer:
$9,959
b. if you wish to have: 6,000 at the end of 6 months, if the bank pays 9.0%
APR ?
Answer:
5,737
c. if you wish to have: $12,000 at the end of 12 months, if the bank pays
6.0% APR ?
Answer:
4. Suppose you make an investment of $A.

$11,303
This first year the investment

returns 10%, the second year it returns 16%, and the third year in returns
2%.

How much would this investment be worth, assuming no withdrawals

are made?
5. Suppose you make an investment of $10,000. This first year the investment
returns 15%, the second year it returns 2%, and the third year in returns
10%.

How much would this investment be worth at the end of three years,

assuming no withdrawals are made?


6. What is the value of the following set of cash flows today?

The interest rate

is 8% for all cash flows.


Year and Cash Flow
1: $ 300
2: $ 500
3: $ 700
4: $ 1000
7. How much would you need to deposit every month in an account paying 6% a
year to accumulate by $1,000,000 by age 65 beginning at age 20?
8. You borrow $60,000 and repay in 8 equal annual installments of $12,935 with
the first payment made exactly 1 year later. To the nearest percent, what
rate of interest are you paying on your loan?

9. You make equal $400 monthly payments on a loan at the end of the year.
The interest rate equals 15% APR, compounded annuallly. The loan is for 12
years. What is the amount of the loan?
10.What is the present value of a stream of $2,500 semiannual payments
received at the end of each period for the next 10 years? The interest rate is
6%.
11.What is the future value in 10 years of $1,500 payments received at the end
of each year for the next 10 years? Assume an interest rate of 8%.
12.You open a savings account that pays 4.5% annually. How much must you
deposit each year in order to have $50,000 five years from now?
13.You are saving up for a down payment on a house. You will deposit $600 a
month for the next 24 months in a money market fund. How much will you
have for your down payment in 24 months if the fund earns 10% interest
compounded monthly?

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