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Practice Set - TVM

This document contains 30 practice problems related to time value of money concepts. The problems cover a range of TVM applications including future and present value calculations for different compounding periods, loan payments, annuities, and investments. The full problem set allows students to practice TVM calculations for scenarios like savings accounts, stock dividends, bonds, loans, leases, retirement planning, and more.

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Vignesh Kivicky
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248 views2 pages

Practice Set - TVM

This document contains 30 practice problems related to time value of money concepts. The problems cover a range of TVM applications including future and present value calculations for different compounding periods, loan payments, annuities, and investments. The full problem set allows students to practice TVM calculations for scenarios like savings accounts, stock dividends, bonds, loans, leases, retirement planning, and more.

Uploaded by

Vignesh Kivicky
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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CF – 1 - Practice Problems in TVM

1. George placed $1000 in a savings account earning 8% compounded annually. How much will
he have in his account at the end of 4 years?
2. Kahn invested a large sum of money in the stock of ELGI Corporation. The company paid a
$3 dividend per share. The dividend is expected to increase by 20 per cent per year for the
next three years. Project the dividends for years 1 through 3.
3. Assume that the principle is $100, interest rate is 12% and number of years is 3. Find the future
value in case of (a) annual compounding, (b) semi-annual compounding, (c) quarterly
compounding, (d) monthly compounding and (e) continuous compounding.
4. If Jane is depositing $1000 at the end of every years for the next 6 years, how much will she
have at the end of the said period if the annual interest rate is 8%?
5. Ron has been given an opportunity to receive $20000, 6 years from now. If he can earn 10%
on his investments, what is the most he should be for this opportunity?
6. Candy has been offered an opportunity to receive the following stream of revenues over the
next three years.
Year 1 2 3
Revenue 1000 2000 500
If she must earn a minimum of 6% on her investment, what is the most she should pay today?
7. In the above sum, if the revenue stream is constant at $1000 in all years, what will be your
answer?
8. Assume that a perpetual bond has an $80 per year interest payment and that the discount rate
is 10%, what would be the present value of this opportunity.
9. Mar wishes to determine the equal annual deposits required to accumulate $5000 at the end of
5 years when he son enters college. The interest rate is 10%.
10. Jeff has a 40-month auto loan of $5000 at a 12% annual interest rate. He wants to find out the
monthly loan payment amount.
11. Assume that a firm borrows $2000 to be repaid in 3 equal installments at the end of each of
next three years. The bank wants 12% interest. How much is each payment.
12. You are been saving up to buy your dream company. The total cost will be $10mn. You
current have $2.3mn., if you can earn 5% on your money, how long will you have to wait?
13. You are considering a one-year investment. If you put up $1250, you will get back $1350.
What rate does this investment paying?
14. You have been offered investments, which will double your money in 10 years. What rate of
interest you are been offered?
15. You have been offered an investment that will pay you 9% per year. If you invest $15000,
how long it will take to double the amount?
16. Determine how much $1,000 deposited in a savings account paying 8% (compounded
annually) will be worth after 5 years.
17. The earnings of Omega Supply Company have grown from $2.00 per share to $4.00 per share
over a nine year time period. Determine the compound annual growth rate.
18. Comet Powder Company has purchased a piece of equipment costing $100,000. It is expected
to generate a ten-year stream of benefits amounting to $16,273 per year. Determine the rate of
return Comet expects to earn from this equipment.
19. Mr.Moore is 35 years old today and is beginning to plan for his retirement. He wants to set
aside an equal amount at the end of each of the next 25 years so that he can retire at age 60.
He expects to live to the maximum age of 80 and wants to be able to withdraw $25,000 per
year from the account on his 61st through 80th birthdays. The account is expected to earn 10
percent per annum for the entire period of time. Determine the size of the annual deposits that
must be made by Mr.Moore.
20. Air Atlantic (AA) has been offered a 3-year old jet airliner under a 12-year lease arrangement.
The lease requires AA to make annual lease payments of $500,000 at the beginning of each of
the next 12 years. Determine the present value of the lease payments if the opportunity cost
of funds is 14 percent.
21. If you invest $10,000 in a 4-year certificate of deposit (CD) paying 10 percent interest
compounded annually, determine how much the CD will be worth at the end of 4 years.
22. You sold 100 shares of stock today for $30 per share that you paid $20 for 6 years ago.
Determine the average annual rate of return on your investment, assuming the stock paid no
dividends.
23. BB&C bank has agreed to lend you $30,000 today, but you must repay $42,135 in 3 years.
What rate is the bank charging you?
24. New Jersey Mutual has offered you a single premium annuity that will pay you $12,000 per
year (end of year) for the next 15 years. If you must pay $109,296 today for this annuity, what
is your expected rate of return?
25. Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete
mixer. The loan requires five equal annual end of the year payments. If the loan provides the
bank with a 12 percent return, what will be your annual payments?
26. Idlewild Bank has granted you a seven year loan for $50,000. If your seven annual end of the
year payments are $11,660.45, what is the rate of interest Idlewild is charging?
27. Your firm, New Sunrise, has just leased a $28,000 BMW for you. The lease requires six
beginning of the year payments that will fully amortize the cost of the car. What is the amount
of the payments if the interest rate is 12 percent?
28. The lease on a new office requires an immediate payment of $24,000 plus $24,000 per year at
the end of each of the next 10 years. At a discount rate of 14 percent, what is the present value
of this stream of lease payments?
29. What is the effective rate of interest on a deposit that has a nominal rate of 9.5 percent with
interest compounded monthly?
30. John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual fund
earning a 12 percent annual return and have a $1 million retirement fund at age 55. How much
must he invest at the end of each year to achieve this goal?

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