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Prelim Exam in Special Topics in Finance - SAMONTE

1. This document contains the answers to practice problems involving time value of money concepts such as present and future value, interest rates compounded continuously, annually, quarterly, and semi-annually. 2. Questions calculate balances in accounts over time given initial deposits and interest rates, amounts needed to be deposited today to reach future values, and lengths of time for investments to grow to target amounts. 3. The last two questions calculate amounts needed to be deposited today or annually to fund retirement withdrawals over 40 years starting 25 years in the future given an interest rate of 6% annually.

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Sharina Mhyca Samonte
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273 views2 pages

Prelim Exam in Special Topics in Finance - SAMONTE

1. This document contains the answers to practice problems involving time value of money concepts such as present and future value, interest rates compounded continuously, annually, quarterly, and semi-annually. 2. Questions calculate balances in accounts over time given initial deposits and interest rates, amounts needed to be deposited today to reach future values, and lengths of time for investments to grow to target amounts. 3. The last two questions calculate amounts needed to be deposited today or annually to fund retirement withdrawals over 40 years starting 25 years in the future given an interest rate of 6% annually.

Uploaded by

Sharina Mhyca Samonte
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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Name: Sharina Mhyca A.

Samonte
Yr./Sec: BSBA-2A
Prelim Exam in Special Topics in Finance
(Time Value of Money

1. What is the balance in an account at the end of 10 years if P2,500 is deposited today and the
account earns 4% interest, compounded annually? quarterly?
Answer: compounded annually = 3,700.61
compounded quarterly = 3,722.16

2. I f you deposit P10 in an account that pays 5% interest, compounded annually, how much will
you have at the end of 10 years? 50 years? 100 years?
Answer: 10 years = 16.29
50 years = 114.67
100 years = 1,315.01

3. How much interest on interest is earned in an account by the end of 5 years if P100,000 is
deposited and interest is 4% per year, compounded continuously?
Answer: 2,140.28

4. How much will be in an account at the end of five years the amount deposited today is
P10,000 and interest is 8% per year, compounded semi-annually?
Answer: 14, 802.44

Complete the following, solving for the present value, PV:

Future I nterest rate Number of Present value


Cas value periods
e
A P10,000 5% 5 7,835.26
B P563,000 4% 20 256,945.85
C P5,000 5.5% 3 4,258.07

5. Suppose you want to have P0.5 million saved by the time you reach age 30 and suppose that
you are 20 years old today. I f you can earn 5% on your funds, how much would you have to
invest today to reach your goal?
Answer: 306,959.63

5. How much would I have to deposit in an account today that pays 12% interest, compounded
quarterly, so that I have a balance of P20,000 in the account at the end of 10 years?
Answer: 6,131.14

5. Suppose I want to be able to withdraw P5,000 at the end of five years and withdraw
P6,000 at the end of six years, leaving a zero balance in the account after the last withdrawal. I
f I can earn 5% on my balances, how much must I deposit today to satisfy my withdrawals
needs?
Answer: 8,394.92
8. Suppose you deposit P100,000 in an account today that pays 6% interest, compounded
annually. How long does it take before the balance in your account is P500,000?
Answer: 27.621 years or 28 years

8. The Lucky Loan Company will lend you P10,000 today with terms that require you to pay off the
loan in thirty-six monthly installments of P500 each. What is the effective annual rate of interest
that the Lucky Loan Company is charging you?
Answer: 52.8806%

8. How long does it take for your money to grow to ten times its original value if the interest rate of
5% per year?
Answer: 47.194 years or 48 years

11. Suppose you wish to retire forty years from today. You determine that you need P50,000 per
year once you retire, with the first retirement funds withdrawn one year from the day you retire.
You estimate that you will earn 6% per year on your retirement funds and that you will need
funds up to and including your 25th birthday after retirement.

a. How much must you deposit in an account today so that you have enough funds for
retirement?
Answer: 62,141.29

b. How much must you deposit each year in an account, starting one year from today,
so that you have enough funds for retirement?
Answer: 4,130.01

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