TOPIC 4: TIME VALUE OF MONEY (FUTURE VALUE)

1. Adrian buys a 4-year certificate of deposit (CD) which pays an annual rate of
interest of 5%. If he puts RM 3,900 in the CD, how much will he have when it matures?

2. Karen has deposited RM 3,500 in a bank account which pays 4% per year and
compounded monthly. How much will he have at the end of 4 years?

3. A deposit of RM 1,000 on January 1, 2019 will have a future value of

RM__________ on December 31, 2023 (Year 5) if it is invested at 8% per year and the
interest is compounded annually.

4. The interest rate that is necessary for a deposit of RM1,000 to grow to RM5,474
after 15 years of interest compounded annually is __________% per year.

5. An account or deposit will earn 12% interest per year for two years. Assuming
that you are using the APPENDIX 1: Future value Table and the interest is compounded
monthly, you will find the factor in the row where n is __________ periods.

6. An account or deposit will earn 12% interest per year for two years. Assuming
that you are using the future value of 1 table and that the interest is compounded
monthly, you will find the factor in the column where i is __________.

7. What is the balance in an account at the end of 10 years if RM 2,500 is deposited

today and the account earns 4% interest, compounded annually? And what if it
compounded quarterly. Compare your answers.

8. If you deposit RM 10 in an account that pays 5% interest, compounded annually,

how much will you have at the end of 10 years? 50 years? 100 years? (Calculate by
using mathematical formula)

9. RM 100,000 is deposited, and interest is 4% per year, how much will you have at
the end of 5 years, if it is compounded annually? And what if it is compounded
continuously. Compare your answers.
10. Suppose Calvin deposit RM 100,000 in an account today that pays 6% interest,
compounded annually. How long does it take before the balance in the account is RM
429,190.
TOPIC 4: TIME VALUE OF MONEY (PRESENT VALUE)

1. Let's assume we are to receive RM 100 at the end of two years. How do we
calculate the present value of the amount, assuming the interest rate is 8% per year
compounded annually?
(Calculate by using two methods - mathematical formula and financial table)

2. We need to calculate the present value (the value at time period 0) of receiving a
single amount of RM 4,500 in 20 years. The interest rate for discounting the future
amount is estimated at 10% per year compounded annually.
(Calculate by using two methods - mathematical formula and financial table)

3. What is the present value of receiving a single amount of RM 5,000 at the end of
three years, if the time value of money is 8% per year, compounded quarterly?
(Calculate by using - mathematical formula)

4. Bell wants to have RM 5,000 in his bank account to buy a brand new Volvo Car
in four years’ time. He has the option to invest for a return of 7%. How much should he
invest now to buy that car?
(Calculate by using two methods - mathematical formula and financial table)

5. What is the present value of receiving a single amount of RM 10,000 at the end
of five years, if the time value of money is 6% per year, compounded semi-annually?
(Calculate by using - mathematical formula)

6. Based on his father’s arrangement, Loga is to get RM 115,000 on his 25th

birthday, which is 5 years away. The funds have already been deposited in a bank and
Loga wants to find out the present value of the fund. Loga has also found out that banks
are in general, offering a 5% interest rate. Calculate the present value of the fund.
(Calculate by using two methods - mathematical formula and financial table)

7. In 3 years you are to receive RM 5,000. If the interest rate were to suddenly
increase, the present value of that future amount to you would…………………
A. Fall C. Remain Unchanged
B. Rise D. Cannot be determined
8. You are considering investing in a zero-coupon bond that sells for RM 250. At
maturity in 16 years, it will be redeemed for RM 1,000. What approximate annual rate of
growth does this represent?

TOPIC 4: TIME VALUE OF MONEY (ANNUITIES)

1. Ali has just retired and will receive an annuity of RM 1,900 per month for 20
years. Payments are made at the end of each month. If he uses a discount rate with an
annual return of 7%, what is the present value of his annuity?
(Calculate by using mathematical formula and using financial table)

2. If you want to retire in 20 years at the age of 60, how much must you deposit
today in order to receive an annuity payment of RM 1,800 per month for the next 20
years? You would also like to have the first payment at the beginning of the year. The
annual interest rate offered by the market is 9%.
(Calculate by using mathematical formula and using financial table)

3. Bob wants to buy an asset that costs him monies that he currently does not have
hence the need to save money for this purpose. If he manages to save RM 650 per
month and makes the payments at the end of each month, how much will he have
accumulated at the end of 5 years if he manages to earn an annual rate of 8% on his
savings? What if he starts his savings at the beginning of the month? Compare your
answers. (Calculate by using mathematical formula and using financial table)

Ordinary Annuity – end of the month Annuity Due – Beginning of the month

4. A deposit of RM 100 is placed into a college fund at the beginning of every month
for 10 years. The fund earns 9% annual interest, compounded yearly, and paid at the
end of the month. How much is in the account right after the last deposit? (Calculate by
using mathematical formula and using financial table)
5. RM 200 is deposited into a retirement fund. The fund earns 6% annual interest,
compounded yearly, and paid into the account at the beginning of the month. How much
is in the account if deposits are made for 10 years?

6. Consider an annuity consisting of 3 years RM 2,000 per year. Assume a 4%

interest rate. What is the present value of the annuity if the first year occurs: a) Today
(Calculate by using mathematical formula)
b) One year from today (Calculate by using mathematical formula)

7. If interest is paid at a rate of 5% per year, compounded yearly, what is the:

a) Annual Percentage Rate.
b) Effective Annual Rate.