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    Time Value of Money

    Uploaded by

    Mohammad Aslam
    This document provides 7 practice questions relating to the time value of money concept to help students understand these concepts. The questions cover topics such as calculating account balances with different compounding periods, present and future values of investments, comparing amounts worth at different interest rates, calculating loan repayment periods, and present and future values of annuities. Solving these questions will help students to attempt quizzes, assignments, and exams on time value of money.

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    Attribution Non-Commercial (BY-NC)
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    Time Value of Money

    Uploaded by

    Mohammad Aslam
    517 views2 pages
    This document provides 7 practice questions relating to the time value of money concept to help students understand these concepts. The questions cover topics such as calculating account balances with different compounding periods, present and future values of investments, comparing amounts worth at different interest rates, calculating loan repayment periods, and present and future values of annuities. Solving these questions will help students to attempt quizzes, assignments, and exams on time value of money.

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    This document provides 7 practice questions relating to the time value of money concept to help students understand these concepts. The questions cover topics such as calculating account balances with different compounding periods, present and future values of investments, comparing amounts worth at different interest rates, calculating loan repayment periods, and present and future values of annuities. Solving these questions will help students to attempt quizzes, assignments, and exams on time value of money.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    517 views2 pages

    Time Value of Money

    Uploaded by

    Mohammad Aslam
    This document provides 7 practice questions relating to the time value of money concept to help students understand these concepts. The questions cover topics such as calculating account balances with different compounding periods, present and future values of investments, comparing amounts worth at different interest rates, calculating loan repayment periods, and present and future values of annuities. Solving these questions will help students to attempt quizzes, assignments, and exams on time value of money.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 2

    TIME VALUE OF MONEY

    Practice questions

    Dear students,
    These are some practice questions (selected from your
    recommended book), relating to Time value of money that
    will help you out to understand the concepts. Solve these
    questions and these will help you to attempt the quizzes,
    assignments, GDBs and Examinations as well.

    1. Assume that it is now January 1, 2002. On January 1, 2003, you will deposit $1,000
    into a savings account that pays 8 percent.
    a. If the bank compounds interest annually, how much will you have in your account
    on January 1, 2006?
    b. What would your January 1, 2006, balance be if the bank used quarterly
    compounding rather than annual compounding?
    c. Suppose you deposited the $1,000 in 4 payments of $250 each on January 1 of
    2003, 2004, 2005, and 2006. How much would you have in your account on
    January 1, 2006, based on 8 percent annual compounding?
    d. Suppose you deposited 4 equal payments in your account on January 1 of 2003,
    2004, 2005, and 2006. Assuming an 8 percent interest rate, how large would each
    of your payments have to be for you to obtain the same ending balance as you
    calculated in part a

    2. An investment pays you $100 at the end of each of the next 3 years. The investment
    will then pay you $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the
    end of Year 6. If the interest rate earned on the investment is 8 percent, what is its present
    value? What is its future value?

    3. Which amount is worth more at 14 percent, compounded annually: $1,000 in hand


    today or $2,000 due in 6 years?

    4. While you were a student in college, you borrowed $12,000 in student loans at an
    interest rate of 9 percent, compounded annually. If you repay $1,500 per year, how long,
    to the nearest year, will it take you to repay the loan?

    5. The prize in last week’s Florida lottery was estimated to be worth $35 million. If you
    were lucky enough to win, the state will pay you $1.75 million per year over the next 20
    years. Assume that the first installment is received immediately.
    a. If interest rates are 8 percent, what is the present value of the prize?
    b. If interest rates are 8 percent, what is the future value after 20 years?
    c. How would your answers change if the payments were received at the end of each
    year?
    6. Find the future value of the following annuities. The first payment in these annuities is
    made at the end of Year 1; that is, they are ordinary annuities. Assume that compounding
    occurs once a year.
    a. $400 per year for 10 years at 10 percent.
    b. $200 per year for 5 years at 5 percent.
    c. $400 per year for 5 years at 0 percent.
    d. Now rework parts a, b, and c assuming that payments are made at the beginning
    of each year; that is, they are annuities due.

    7. What is the present value of receiving $6,000 seven years from now if the nominal
    discount rate is 8 percent, discounted continuously?

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