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Exercise TVM - TPFM

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24 views2 pages

Exercise TVM - TPFM

Uploaded by

habiba.ansari1999
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Course: TPFM by Dr.

Muhammad Nabeel Ashraf

Exercise
Time Value of Money

1. Find the PV of $100 due after 10 years when the stated annual rate is 5%, with
semiannual compounding:

2. Would you rather invest in an account that pays 7% with annual compounding or 7%
with monthly compounding? Would you rather borrow at 7% and make annual or
monthly payments? Why?

3. What’s the future value of $100 after 3 years if the appropriate interest rate is 8%
compounded annually? compounded monthly?

4. What’s the present value of $100 due in three years if the appropriate interest rate is
8% compounded annually? compounded monthly?

5. It is now January 1, 2009. Today you will deposit $1,000 into a savings account that
pays 8%.
a) If the bank compounds interest annually, how much will you have in your account
on January 1, 2012?
b) What will your January 1, 2012, balance be if the bank uses quarterly
compounding?
c) Suppose you deposit $1,000 in three payments of $333.333 each on January 1 of
2010, 2011, and 2012. How much will you have in your account on January 1,
2012, based on 8% annual compounding?
d) How much will be in your account if the three payments begin on January 1,
2009?

6. If you deposit $10,000 in a bank account that pays 10% interest annually, how much
will be in your account after 5 years?

7. What is the present value of a security that will pay $5,000 in 20 years if securities of
equal risk pay 7% annually?

8. What’s the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If
this was an annuity due, what would its future value be?

9. An investment will pay $100 at the end of each of the next 3 years, $200 at the end of
Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments
of equal risk earn 8% annually, what is its present value? Its future value?

10. Find the following values using the equations and then a financial calculator.
Compounding/discounting occurs annually.
a) An initial $500 compounded for 1 year at 6%

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Course: TPFM by Dr. Muhammad Nabeel Ashraf

b) An initial $500 compounded for 2 years at 6%


c) The present value of $500 due in 1 year at a discount rate of 6%
d) The present value of $500 due in 2 years at a discount rate of 6%

11. Find the following values. Compounding/discounting occurs annually.


a) An initial $500 compounded for 10 years at 6%
b) An initial $500 compounded for 10 years at 12%
c) The present value of $500 due in 10 years at 6%
d) The present value of $1,552.90 due in 10 years at 12% and at 6%

12. Shalit Corporation’s 2008 sales were $12 million. Its 2003 sales were $6 million.
a) At what rate have sales been growing?
b) Suppose someone made this statement: “Sales doubled in 5 years. This represents
a growth of 100% in 5 years; so dividing 100% by 5, we find the growth rate to be
20% per year.” Is that statement correct?

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