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Time Value of Money PQ

The document presents a series of financial problems related to the Time Value of Money, including calculations for investments, savings, loans, and retirement funding. Each problem involves determining future values, present values, or required contributions based on specified interest rates and time periods. The scenarios cover various financial situations such as lottery winnings, retirement savings, mortgage calculations, and scholarship funding.

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Нурсултан Мелисбеков
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20 views2 pages

Time Value of Money PQ

The document presents a series of financial problems related to the Time Value of Money, including calculations for investments, savings, loans, and retirement funding. Each problem involves determining future values, present values, or required contributions based on specified interest rates and time periods. The scenarios cover various financial situations such as lottery winnings, retirement savings, mortgage calculations, and scholarship funding.

Uploaded by

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

Problem 1
Happy Harry has just bought a scratch lottery ticket and won €10,000. He wants to finance the
future study of his newly born daughter and invests this money in a fund with a maturity of 18
years offering a promising yearly return of 6%. What is the amount available on the 18th
birthday of his daughter?

Problem 2
Rudy will retire in 20 years. This year he wants to fund an amount of €15,000 to become
available in 20 years. How much does he have to deposit into a pension plan earning 7%
annually?

Problem 3
The National Savings Fund promises a monthly 0.75% return if you deposit €100 per month
for 15 consecutive years. What amount will be accumulated after those 15 years?

Problem 4
Willy has just bought a house. She estimates that the roof will have to be renewed at a cost of
€25,000 after 20 years. To cover these costs, she intends to save an equal amount of money at
the end of each year, earning 6% annual interest rate. How much is such a yearly annuity?

Problem 5
Pete considers buying a house. Currently, he rents a place for €1,000 a month. The current
monthly interest rate on mortgages is 0.5%. His planning period is 20 years. If he doesn’t
want to increase his housing costs, what amount of mortgage is available for his purchase?
(Neglect any tax effects here).

Problem 6
A company buys a piece of equipment for €2 million on January 1. The expected useful life is
6 years and the salvage value is estimated zero. The company intends to replace the
equipment identically. The average expected price increase is 8% yearly. For this purpose, the
company creates a special fund with annual equal payments at the end of each year during the
lifetime. Cost of capital and earnings of the fund (i) is 10% per year. Compute the annual
payment into the fund.

Problem 7
Sarah wants to save for retirement. She plans to invest $5,000 today in a savings account that earns an
annual interest rate of 6%, compounded annually. How much will she have in the account after 5 years?

Problem 8
John has won a lottery prize of $10,000, but he can either take the full amount 4 years from now or
receive a smaller amount today. If the discount rate is 8% per year, what is the present value of the
$10,000 future payment?

Problem 9
A startup company needs $50,000 in 3 years to buy new equipment. If they can invest money today at
an interest rate of 5% per year, how much should they invest now to reach their goal?
Problem 10
A parent deposits $1,000 at the end of each year into a college savings plan earning 7% interest
annually. How much will be available after 10 years for their child's education?

Problem 11
Mark plans to contribute $200 at the end of every month into a retirement fund earning 8% annual
interest, compounded monthly. How much will he have saved after 15 years?

Problem 12
Emma wants to save for a dream vacation. She deposits $100 per month in a travel fund with 4% annual
interest, compounded monthly. How much will she have in 5 years?

Problem 13
A bank offers a mortgage where you pay $1,500 per month for 20 years at an annual interest rate of 5%,
compounded monthly. What is the present value (loan amount) that the bank is lending you?

Problem 14
A retiree wants to withdraw $3,000 per month for 25 years from a retirement account that earns 6%
annually, compounded monthly. How much does the retiree need to have in the account today?

Problem 15
A company wants to provide an employee with $50,000 per year for 20 years after retirement. If the
company assumes an interest rate of 6% per year, how much should they set aside today?

Problem 16
Mia is buying a car and needs a loan of $25,000. The bank offers a 5-year loan with an 8% annual
interest rate, compounded monthly. What will be her monthly payment?

Problem 17
A business borrows $100,000 and agrees to repay it in equal annual payments over 10 years with an
interest rate of 6% per year. What will be the annual payment?

Problem 18
Alex wants to buy a house in 5 years and needs a $20,000 down payment. If she can invest money today
at an 8% interest rate, how much should she invest now?

Problem 19
A university wants to set up a permanent scholarship that pays $5,000 annually forever. If the interest
rate is 4% per year, how much money needs to be invested today?

Problem 20
Lisa expects to need $40,000 per year during retirement for 30 years. If inflation is expected to be 3%
per year and her investments earn 7% annually, how much should she save before retiring?

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