Question

1. What is the future value of $10,000 after 15 years when investing 4%?
2. What is the future value in the preceding problem if the interest is compounded monthly?
3. What is the future value after 22 years of year-end deposits of $50,000 earning 3%?
4. What is the future value in the preceding problem if deposits are year-beginning?
5. What is the most you should pay today for a piece of land which will be worth $500,000 in 4 years if you want a 15% return?
6. What is the present value of an annuity due which pays $20,000 per year for 10 years if a 12% discount rate is used?
7. How much would you have to pay today for a 25-year annuity paying $45,000 annually if it begins 15 years from now and you want a annual return?
8. If you want a 3% return, what is the most you should pay today for a stock that will trade at $75 in 5 years and pay a $2 annual dividend?
9. If you paid $750 for an investment 6 years ago that is now worth $2000, what was your rate of return?
10. If you save $100 per month, what annual rate of interest must you earn in order to accumulate $10,000 after 12 years?
11. If you borrow $250,000 for 5 years and your monthly payment is $1000, what rate of interest are you paying?
12. If you bought a bond five years ago for $900 which paid annual interest of $200 and sold it today for $950, what was your rate of return?
13. If you want to accumulate $500,000 after 30 years and your bank pays 2%, how much will you have to deposit monthly?
14. If you borrow $600,000 for 25 years at 6%, what will be your monthly payment?

Answer 1

1) FV = PV x (1 + r)^n

=> FV = 10,000 x (1 + 4%)^15 = $18,009

2) FV = 10,000 x (1 + 4%/12)^(15 x 12) = $18,203

3) Future Value can be calculated using calculator or formula

N = 22, PMT = 50,000, I/Y = 3%, PV = 0

=> Compute FV = $1,526,839

4) PV = FV / (1 + r)^n = 500,000 / (1 + 15%)^4 = $285,877 is the max you should pay.

5) PV of annuity due can be calculated using PV function on a calculator with BEGIN mode

N = 10, I/Y = 12%, PMT = 20,000, FV = 0

=> Compute PV = $393,092