Question

Tom made a purchase on property 15 years ago. The current value of the property is $120,000. If the average inflation rate was 3% for the past 15 years, what was the value of the property when you purchased it?

• $77,023.43
• $186,956.09
• $174,000.00
• $66,000.00
• $120,000.00

Today, Molly deposited $3,000 in a disk with an interest rate of 4.65%. How much can Molly withdraw in 10 years?

• $3,000.00
• $1,904.27
• $4,726.22
• $4,395.00

Today, John received tax return and realized that it would be a great opportunity to start saving some money every year for 30 years until he retires. Since he has already made a plan for how to spend this year’s return, he will start saving a year from today (still 30 years of contributions). John will invest $4,500 a year into an account that will give him a 6% annual return. How much will John have when he retires?

• $138,989.08
• $381,607.55
• $61,941.74
• $355,761.84
• $377,107.55

Find the present value of an annual payment of $67,000 that is received in perpetuity if the discount rate is 6%?   

• $632,075
• $402,000
• $1,116,667
• $710,200
• none of the above

Answer 1

Answer to Question 1:

Current Value = $120,000
Inflation Rate = 3%
Time Period = 15 years

Purchase Value of Property = $120,000/1.03^15
Purchase Value of Property = $77,023.43

Answer to Question 2:

Amount Deposited = $3,000
Interest Rate = 4.65%
Time Period = 10 years

Future Value = $3,000*1.0465^10
Future Value = $4,726.22

Answer to Question 3:

Annual Deposit = $4,500
Interest Rate = 6%
Time Period = 30 years

Accumulated Sum = $4,500*1.06^29 + $4,500*1.06^28 + … + $4,500*1.06 + $4,500
Accumulated Sum = $4,500 * (1.06^30 - 1) / 0.06
Accumulated Sum = $4,500 * 79.058186
Accumulated Sum = $355,761.84

Answer to Question 4:

Annual Payment = $67,000
Discount Rate = 6%

Present Value = Annual Payment / Discount Rate
Present Value = $67,000 / 0.06
Present Value = $1,116,667