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Time Value of Money Assignment

This document contains 10 multi-part questions about financial calculations including compound interest, present and future value of investments, annuities, and sinking funds. The questions cover topics like calculating how much to save each year to reach a future target amount, determining interest rates needed for investments to reach future values, calculating investment growth over time at different interest rates and compounding periods, comparing lump sum vs annuity payout options, and calculating payment amounts needed for sinking funds.

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143 views

Time Value of Money Assignment

This document contains 10 multi-part questions about financial calculations including compound interest, present and future value of investments, annuities, and sinking funds. The questions cover topics like calculating how much to save each year to reach a future target amount, determining interest rates needed for investments to reach future values, calculating investment growth over time at different interest rates and compounding periods, comparing lump sum vs annuity payout options, and calculating payment amounts needed for sinking funds.

Uploaded by

awaischeema
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 1

1. The Wintergreens are planning ahead for their son's education. He's eight now and will
start college in 10 years. How much will they have to set aside at the end of each year to
have $65,000 in 10 years if the annual interest rate is 7%?
2. What annual interest rate would you need in order to have an ordinary annuity of $7,500
per year accumulate to $279,600 in 15 years?
3. You have $10,000 to invest. Assuming annual compounding, how long will it take for the
$10,000 to double if it is invested at an annual interest rate of 14 percent?
4. What is the present value of $800 to be received at the end of 8 years, assuming an
interest rate of 20 percent, quarterly compounding?
5. Your mother is planning to retire this year. Her firm has offered her a lump sum
retirement payment of $50,000 or a $6,000 lifetime ordinary annuity- whichever she
chooses. Your mother is in reasonably good health and expects t o live for at least 15
more years. Which option should she choose, assuming that an 8 percent annual interest
rate is appropriate to evaluate the annuity?
6. Determine the value at the end of 3 years of a $10,000 investment (today) in a bank
certificate of deposit (CD) that pays a nominal annual interest rate of 8 percent,
compounded monthly.
7. Steven White is considering taking early retirement, having saved $400,000. White
desires to determine how many years the savings will last if $40,000 per year is
withdrawn at the end of each year. White feels the savings can earn 10 percent per year.

8. Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest annually
at the rate of 9 percent for seven years.
a) How much will Jim have on deposit at the end of seven years?
b) Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how
much would he have at the end of seven years?
9. An investor can make an investment in a real estate development and receive an expected
cash return of $45,000 after six years. Based on a careful study of other investment
alternatives, she believes that an 18 percent annual return compounded quarterly is a
reasonable return to earn on this investment. How much should she pay for it today?
10. A loan of $50,000 is due 10 years from today. The borrower wants to make annual
payments at the end of each year into a sinking fund that will earn interest at an annual
rate of 10 percent.
a) What will the annual payments have to be?
b) Suppose that the borrower will make monthly payments that earn 10 percent
interest, compounded monthly. How much will he pay annually into the fund?

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