Time Value Assignment Fall 2019

1. Assume that this year, the average wedding cost $25,000. Assuming 4% inflation, what will it cost in 30 years?

2. At what rate must money be invested to double the money over a 10 year time frame? 3. Suppose you need $10,000 in two years for the down payment on a new car. If you can earn 7% annually, how much do you need to invest today?

4. You want to begin saving for your daughters college education and you estimate that she will need $150,000 in 17 years. If you feel confident that you can earn 8% compounded semiannually, how much do you need to invest today?

5. You are considering an investment that will pay you $1,000 in one year, $2,000 in two years and $3,000 in three years. If you want to earn 10% on your money, how much would you be willing to pay?

6. What is the present value of the 25 annual payments of $50,000 offered to a soon-to-be ex-spouse, assuming a 5% discount rate?

7. Assuming $2000 annual contributions earn a 9% return, how much will an Individual Retirement Account (IRA) be worth in 30 years?

8. Suppose you begin saving for your retirement by depositing $2,000 per year in an IRA starting at the end of the year. If the interest rate is 7.5%, how much will you have in 40 years?

9. You are saving for a new house and you put $10,000 per year in an account paying 8%. The first payment is made today. How much will you have at the end of 3 years?

10. You are renting a storage warehouse for 6 years. The rent is $6,000 per year payable at the beginning of each year. You want to set aside the money necessary to meet these payments. If the money you deposit in the payment account earns 9% compounded annually, how much do you have to deposit in the account?

11. To purchase a new boat, you agree to pay the owner each year at the beginning of the year for five years. The boat will cost you $25,000. If you agree to a loan rate of 10% for the right to buy the boat in payments rather than in one lump sum, how much are your annual payments?

12. If the present value of an investment is $78.35 and the future value is $100, how long was the investment invested if the rate earned was 5%?

13. If the present value of a six (6) year investment is $95.00 and the future value is $145, what rate is being earned?

14. If an investment increased in value from $30,000 to $80,000 in 5 years, what was the annual compounded rate of growth?

15. What is the present value of a perpetuity of $5,000 invested at a rate of 12%?

16. Your cousin has just invested in a consul bond that promises to pay $200 per year into perpetuity. She would like to know the final ending value of the bond.

17. What is the effective annual rate of interest on your credit card if the nominal rate is 18% per year, compounded monthly?

18. You are looking at two savings accounts. One pays 5.25%, with quarterly compounding. The other pays 5.30% with semiannual compounding. Which account should you use?

19. If you deposit $300 today, what is the future value of the deposit five years from now with 8% interest compounded quarterly?

20. What is the PV of $100 one year from now with 12% interest compounded monthly?

21. What is the future value of $100 invested at the end of each year for three years if the money is invested at 12% interest compounded quarterly?

22. What is the present value of $500 invested at the end of each year for four (4) years if the money is invested at 8% interest compounded quarterly?

23. How long must you leave $5,000 invested at 6% compounded semiannually for the investment to grow to $10,000?

24. What is the table factor that you would find on the present value of a $1 Annuity for 30 years and 6.5% compounded monthly?

25. If you invest $11,000 in a mutual fund today, and it grows to be $50,000 after 8 years, what compound annual rate of return did you earn?

26. Find the compound value of a $125, ten-year ordinary annuity at 6 percent annual interest if the payment at the end of year 6 is omitted. $125 $125 $125 $125 $125 $125 $125 $125 $125 |__________|__________|_________|__________|_________|_________|_________|_________|_________|_________| 0 1 2 3 4 5 6 7 8 9 10 27. A father is planning to provide a 20-year trust fund for his son Dominic. The amount deposited today will remain untouched until the end of the 20th year, but will gain interest at a rate of 8 percent compounded annually. The money will then be transferred to another account, which pays 6 percent. The intent is that Dominic will withdraw the money in six equal annual payments of $4,000 each beginning at the end of year 20. The fund, which will help to pay for his higher education will be completely depleted after six payments. What amount should Dominics father deposit today? $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 |____________|____________|___________|___________|___________|___________|___________|___________| 0..20 21 22 23 24 25 26

28. You have borrowed $10,000 at 9%. Your lender requires annual payments over a four-year period. Identify the amount of each payment.

29. You have borrowed $10,000 at 9%. Your lender requires annual payments over a four year period. Create an amortization table for your loan. Use the payment determined in question number 28.