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Practice Problems TMV

The document contains 19 sample problems related to time value of money concepts. The problems involve calculating future and present values of lump sums and annuities using different interest rates. They also include calculations for loans, leases, and retirement planning.

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ShikharSrivastava
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141 views2 pages

Practice Problems TMV

The document contains 19 sample problems related to time value of money concepts. The problems involve calculating future and present values of lump sums and annuities using different interest rates. They also include calculations for loans, leases, and retirement planning.

Uploaded by

ShikharSrivastava
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Time Value of Money - Sample Problems

1. If you wish to accumulate $140,000 in 13 years, how much must you deposit today in an account
that pays an annual interest rate of 14%?
2. What will $247,000 grow to be in 9 years if it is invested today in an account with an annual
interest rate of 11%?
3. How many years will it take for $136,000 to grow to be $468,000 if it is invested in an account
with an annual interest rate of 8%?
4. At what annual interest rate must $137,000 be invested so that it will grow to be $475,000 in 14
years?
5. You are offered an annuity that will pay $24,000 per year for 11 years (the first payment will occur
one year from today). If you feel that the appropriate discount rate is 13%, what is the annuity
worth to you today?
6. If you deposit $16,000 per year for 12 years (each deposit is made at the end of each year) in an
account that pays an annual interest rate of 14%, what will your account be worth at the end of
12 years?
7. You plan to borrow $389,000 now and repay it in 25 equal annual installments (payments will be
made at the end of each year). If the annual interest rate is 14%, how much will your annual
payments be?
8. You are told that if you invest $11,000 per year for 23 years (all payments made at the end of each
year) you will have accumulated $366,000 at the end of the period. What annual rate of return is
the investment offering?
9. You are offered an annuity that will pay $17,000 per year for 7 years (the first payment will be
made today). If you feel that the appropriate discount rate is 11%, what is the annuity worth to
you today?
10. If you deposit $15,000 per year for 9 years (each deposit is made at the beginning of each year)
in an account that pays an annual interest rate of 8%, what will your account be worth at the end
of 9 years?
11. You plan to accumulate $450,000 over a period of 12 years by making equal annual deposits in an
account that pays an annual interest rate of 9% (assume all payments will occur at the beginning
of each year). What amount must you deposit each year to reach your goal?
12. You are told that if you invest $11,100 per year for 19 years (all payments made at the beginning
of each year) you will have accumulated $375,000 at the end of the period. What annual rate of
return is the investment offering?
13. You are considering leasing a car. You notice an ad that says you can lease the car you want for
$477.00 per month. The lease term is 60 months with the first payment due at inception of the
lease. You must also make an additional down payment of $2,370. The ad also says that the
residual value of the vehicle is $20,430. After much research, you have concluded that you could
buy the car for a total "driveout" price of $33,800. What is the quoted annual interest rate you
will pay with the lease?
14. You are valuing an investment that will pay you $12,000 the first year, $14,000 the second year,
$17,000 the third year, $19,000 the fourth year, $23,000 the fifth year, and $29,000 the sixth year
(all payments are at the end of each year). What it the value of the investment to you now is the
appropriate annual discount rate is 11.00%?
15. You are valuing an investment that will pay you $27,000 per year for the first ten years, $35,000
per year for the next ten years, and $48,000 per year the following ten years (all payments are at
the end of each year). If the appropriate annual discount rate is 9.00%, what is the value of the
investment to you today?
16. You have just won the Georgia Lottery with a jackpot of $40,000,000. Your winnings will be paid
to you in 26 equal annual installments with the first payment made immediately. If you feel the
appropriate annual discount rate is 8%, what is the present value of the stream of payments you
will receive?
17. You are planning for retirement 34 years from now. You plan to invest $4,200 per year for the
first 7 years, $6,900 per year for the next 11 years, and $14,500 per year for the following 16 years
(assume all cash flows occur at the end of each year). If you believe you will earn an effective
annual rate of return of 9.7%, what will your retirement investment be worth 34 years from now?
18. How much invested now at 6% would be just sufficient to provide three payment, with first
payment in the amount of $8000 occurring two year hence, then $6000 five year hence and finally
$4000 seven year hence?
19. An individual deposits an annual bonus into a savings account that pays 8% interest compounded
annually. The size of the bonus increases by $3000 each year, and the initial bonus amount was
$10000. Determine how much will be in the account immediately after fifth deposit.

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