Question

What is the present value of $200 to be received two years from now, with an interest rate of 5%?

You deposit $2000 today at 6% interest. How much will you have in 5 years?

You invest $5,000 today. You will earn 8% interest. How much will you have in 4 years?

You have $450,000 to invest. If you think you can earn 7%, how much could you accumulate in 10 years?

You deposit $300 each year for 15 years at 6%. How much will you have at the end of that time?

You invest $2,000 in IRA’s each year for 5 years. If interest on these IRA’s is 4%, how much will you have at the end of those 5 years?

If you deposit $4,500 each year into an account paying 8% interest, how much will you have at the end of 3 years?

How much would you have to deposit now to have $15,000 in 8 years if interest is 7%?

If you want to have $10,000 in 3 years and you can earn 8%, how much would you have to deposit today?

If you think you can sell an asset for $25,000 in five years and you think the appropriate discount rate is 5%, how much would you be willing to pay for the asset today?

Find the present value of a 4-year, $3,000 per year annuity at 6%.

You borrow $50,000 and will make monthly payments for 2 years at 12% interest. How much will those payments be?

You just won a contest that will pay you $15,000 each year, for five years. Assuming a 12% discount rate, what is the present value of your contest winnings?

14. John plans to retire in 12 years. When he retires, he would like to take an extended vacation, which he expects will cost at least $40,000. What lump-sum amount must he invest now to have the needed $40,000 at the end of 12 years if he invests at

8%?

12%?

15. If John chooses to invest money each year to fund his vacation in 12 years, how much money must he invest at the end of each year to have $40,000 to fund his vacation if he invests at

8%?

12%?

16. You have just received an inheritance from a relative. You can invest the money and either receive a $200,000 lump-sum amount at the end of 10 years or receive $14,000 at the end of each year for the next 10 years. If your minimum desired rate of return is 12%, which alternative would you prefer?

Answer #1

1) | Present Value | $ 181.41 | ||||

Working: | ||||||

Present Value | = | 200*(1+0.05)^-2 | ||||

= | $ 181.41 | |||||

2) | Future Value of Investment | $ 2,676.45 | ||||

Working: | ||||||

Future Value | = | 2000*(1+0.06)^5 | ||||

= | $ 2,676.45 | |||||

3) | Future Value of Investment | $ 6,802.44 | ||||

Working: | ||||||

Future Value | = | 5000*(1+0.08)^4 | ||||

= | $ 6,802.44 | |||||

4) | Future Value of Investment | $ 8,85,218.11 | ||||

Working: | ||||||

Future Value | = | 450000*(1+0.07)^10 | ||||

= | $ 8,85,218.11 | |||||

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