1. What is the future value of $2,000 invested today if it earns 10% interest for one year?

Investment = 2,000

Rate = 10%

Time period = 1 year

Future value = investment (1 + r) t

Future value = 2,200

2. What is the future value of $2,000 invested today if it earns 10% interest for two years?

Investment = 2,000

Rate = 10%

Time period = 2 year

Future value = investment (1 + r) t

Future value = 2,420

3. What is the future value of $6,000 invested today if it earns 8.5% interest for seven Years?

Investment = 6,000

Rate = 8.5%

Time period = 7 year

Future value = investment (1 + r) t

Future value = 10,621

4. What is the future value of $6,000 invested today if it earns 8% for 10.5 years?

Investment = 6,000

Rate = 8.5%

Time period = 7 year

Future value = investment (1 + r) t

Future value = 13,462

5. An investor deposits $100 into his credit union account that pays interest at the rate of
3.25% per year (payable at the end of each year). He leaves the money and all accrued
interest in the account for 7 years. How much will he have at the end of the 7 years?

Investment = 100

Rate = 3.25%

Time period = 7 year

Future value = investment (1 + r) t

Future value = 100 (1.0325)7

Future value = 100 (1.251)

Future value 125.1

6. What is the future value in SEVEN years if you receive $300 in two years and $500 at the
end of five years? Assume an annual compound rate of 8.5%.

Future value at end of 7 year

Time investment rate of interest time period

0
1
2 300 8.5% 5
3
4
5
6 500 8.5% 2
7

Future value = 300 ( 1.085 ) 5 + 500 ( 1.085)2

Future value = 300 ( 1.504 ) + 500 (1.77)
Future value =451 +589
Future value = 1,040

7. What is the value of $2000 after one year, if bank compounding half yearly and offered rate
is 10%? (note: compare your answer with the answer of question no.1, give comments)

Investment = 2,000

Rate = 10% per year

Time period = 1 year

Compounding= half yearly

Future value = investment (1 + r/2) t X 2

Future value = 2,205

8. What is the value of $2000 after one year if bank compounding quarterly and offered rate is
10%? (note: compare your answer with the answer of question no.1 and 7, give comments)

Investment = 2,000

Rate = 10% per year

Time period = 1 year

Compounding= quarterly

Future value = investment (1 + r/4) t X 4

Future value = 2,208

9. What is the value of $2000after one year if bank compounding monthly and offered rate is
10%? (note: compare your answer with the answer of question no.1,7 and 8 give
comments)

Investment = 2,000

Rate = 10% per year

Time period = 1 year

Compounding= monthly

Future value = investment (1 + r/12) t X 12

Future value = 2,209

10. What is the present value of $2,000 to be received 2 years from today when the annual
discount rate is 10%

Future value = 2,000

Rate = 10% per year

Time period = 2 year

Compounding= yearly

Present value = Future value / ( 1 + r ) t

Present value = 1,653

11. What is the present value of $500 to be received 10.5 years from today when the annual
discount rate is 8%?

Future value = 500

Rate = 8% per year

Time period = 10.5 year

Compounding= yearly

Present value = Future value / ( 1 + r ) t

Present value = 223

12. What is the present value of $700 to be received in two equal installments ($350 each), two
years and five years from today, when the annual discount rate is 10%?

Year present value rate future value

0 ?
1
2 10% 350
3
4
5 10% 350

Present value = future value1 / ( 1 + r ) t + future value2 / ( 1 + r ) t

Present value = 350/(1.1)2 + 350/(1.1)5
Present value = 289 +217
Present value = 506

13.Suppose Capitol Federal Bancorp offers a certificate of deposit that pays $10,000 in five
years for exchange for $8,000 today. What interest rate is Capitol Federal Bancorp offering?

Future value = 10,000

Investment = 8,000

Time period = 5

( 1 + r ) t = future value / present value

( 1+ r ) 5= 10,000/8000

(1 + r ) 5= 1.25

(1 + r ) 5 X 1/5 = (1.25) 1/5

1 + r ) = 1.04

R = 1.04 -1
R = .04 or 4%
13. Suppose Bank One offers a certificate of deposit that pays $5,000 in four years for exchange
for $4,000 today. What interest rate is Bank One offering?

Future value = 5,000

Investment = 4,000

Time period = 4

( 1 + r ) t = future value / present value

( 1+ r ) 4= 5,000/4000

R= 5.74%

14. How many years will take $10,000 to grow to $20,000 if bank offered rate is 10%?

FV= 20,000
PV= 10,000
i= 10%
n= ? Years
Using FVIF
FV= PV [ (1 + i )n
FV/PV
(1+i)n
=
nln(1+i) = ln(FV/PV)
n= ln(FV/PV) / ln(1+i)
n= ln(20,000/10,000) / ln(1+0.1)
n= 0.6931 / 0.0953
n= 7.3 years

15. How many years will take $25,000 to grow to $120,000 if bank offered rate is 18%?

FV= 120,000
PV= 25,000
i= 18%
n= ? Years
Using FVIF
 FV= PV [ (1 + i )n
n= ln(FV/PV) / ln(1+i)
n= ln(120,000/25,000) / ln(1+0.18)
n= 1.5686 / 0.1655
n= 9.5 years

16. Your grandfather placed $2,000 in trust fund for you. In 10 years the fund will be worth
$5,000. What is the compound annual rate of return on the trust fund?

Solution:
FV= 5,000
PV= 2,000
n= 10 Years
i= ?
Using FVIF
FV= PV [ (1 + i )n
i= [(FV / PV)1/n ]-1
i= ((5,000 / 2,000)1/10)-1
i= 9.60%

17. Your rich aunt puts $35,000 into a bank account earning 4.00%. You are not to withdraw the
money until the balance has doubled. About how many years will you have to wait?

PV= 35,000
FV= 70,000
i= 4%
n= ?
Using FVIF
FV= PV [ (1 + i )n
n= ln(FV/PV) / ln(1+i)
n= ln(70,000/35,000) / ln(1+0.04)
n= 0.6931 / 0.0392
n= 17.7 years
18. Sales of current year are 75,000 and sales of a company after four years is $375,000. What
is the rate of growth?

FV= 375,000
PV= 75,000
n= 4 Years
i= ?
Using FVIF
FV= PV [ (1 + i )n
i= [(FV / PV)1/n ]-1
i= ((375,000 / 75,000)1/4)-1
i= 49.53%

19. Consider an APR of 12% with monthly compounding. What is the EAR (effective annual
rate)?

APR= 12%
m= 12 (Compounding monthly)
EAR= ?
EAR= (1+ APR/m)m-1
EAR = ( 1 + .12/ 12 ) 12 – 1
EAR = ( 1 + .01) 12 – 1
EAR = (1.01 ) 12 – 1
EAR= 1.126 – 1
EAR = .126
EAR = 12.6%

20. Consider an APR of 13.5% with quarterly compounding. What is the EAR (effective annual
rate)?
APR
13.5%
=
m= 4 (Compounding quarterly)
EAR= ?
EAR= (1+ APR/m)m-1
EAR= (1+13.5%/4)4-1
EAR= 14.20%
21. Consider an EAR of 13.75% with quarterly compounding. What is the APR (annual
percentage rate)?
13.75
EAR=
%
m= 4 (Compounding quarterly)
APR= ?
EAR= (1+ APR/m)m-1
EAR+1= (1+APR/m)m
(EAR+1)1/m=1+APR/m
APR/m = (EAR+1)1/m-1
APR= m*[(EAR+1)1/m-1]
APR= 4*[(0.1375+1)1/4-1]
13.09
APR=
%

22. Consider an EAR of 18.25% with monthly compounding. What is the APR (annual
percentage rate)?

EAR= 18.25%
m= 12 (Compounding monthly)
APR= ?
EAR= (1+ APR/m)m-1
EAR+1= (1+APR/m)m
(EAR+1)1/m=1+APR/m
APR/m
(EAR+1)1/m-1
=
APR= m*[(EAR+1)1/m-1]
APR= 12*[(0.1825+1)1/12-1]
APR= 16.88%

23. Suppose you save $4,000 per year at the end of each year for 3 years and earn 5% interest
per year. How much will you have at the end of 3 years?

Future value = investment X FVAFnr

Investment = 4,000
N= 3
 Rate= 5%
FVAFnr= ( 1/r-1/r(1+r )t ) X ( 1 + r ) t

FVAFnr= 3.1525

FV= 12,610

24. Suppose you save $4,000 per year at the end of each year for 10 years and earn 8.5%
interest per year. How much will you have at the end of 10 years?

Pmt= 4,000
n= 10 years
i= 8.5%
FV= ?
Using FVAF
FV= Pmt [ ( ( 1 + i )n - 1 ) / i ]
FV= 4,000 [ ( (1 + 0.085 )10 - 1 ) / 0.085 ]
FV= 59,340

25. A person deposited Rs.5000 at the end of six months in each of the next five years. Bank
offered rate is 10%. Calculate how much he has at the end of five years.

Pmt=
5,000
n= 5 years
m= 2 (Compounding half yearly)
i= 10%
FV= ?
Using FVAF
FV= Pmt [((1+(i/m))n*m-1)/ (i/m) ]
FV= 5,000 [((1 + (0.1/2))10*2-1)/ (0.1/2)]
Rs.62,889.4
FV= 6

26. A person saved Rs.2500 at the end of each month in the next three years. Bank offered rate
is 12.25%. Calculate how much he has at the end of three years.

Pmt 2,500
=
n= 3 years
m= 12 (Compounding monthly)
i= 12.25%
FV= ?
Using FVAF
FV= Pmt [((1+(i/m))n*m-1)/ (i/m) ]
FV= 2,500 [((1 + (0.1225/12))3*12-1)/ (0.1225/12)]
FV= Rs.108,105.73
27. Suppose you save $4,000 per year at the end of each year for 30 years and earn 5% interest
per year. How much will you have at the end of 30 years?

Pmt= 4,000
n= 30 years
i= 5%
FV= ?
Using FVAF
FV= Pmt [ ( ( 1 + i )n - 1 ) / i ]
FV= 4,000 [ ( (1 + 0.05 )30 - 1 ) / 0.05 ]
FV= $265,755

28. Suppose you save $500 per year at the end of each year for 20 years and earn 8.25%
interest per year. How much will you have at the end of 20 years?

Pmt= 500
n= 20 years
i= 8.25%
FV= ?
Using FVAF
FV= Pmt [ ( ( 1 + i )n - 1 ) / i ]
FV= 500 [ ( (1 + 0.0825 )20 - 1 ) / 0.0825 ]
FV= $23,525

29. Suppose you save $1,000 per year at the end of each year for 15 years and earn 8.25%
interest per year. How much will you have at the end of 15 years?

Pmt= 1,000
n= 15 years
i= 8.25%
FV= ?
Using FVAF
FV= Pmt [ ( ( 1 + i )n - 1 ) / i ]
FV= 1,000 [ ( (1 + 0.0825 )15 - 1 ) / 0.0825 ]

FV= $27,686
30. Suppose you save $1,000 per year at the end of each year for 15 years and earn 7.49%
interest per year. How much will you have at the end of 15 years?

Pmt= 1,000
n= 15 years
i= 7.49%
FV= ?
Using FVAF
FV= Pmt [ ( ( 1 + i )n - 1 ) / i ]
FV= 1,000 [ ( (1 + 0.0749 )15 - 1 ) / 0.0749 ]
FV= $26,098

31. Suppose you save $500 per year at the end of each year for 15 years and earn 8.25%
interest per year. What is the future value of this annuity?

Pmt=
500
n= 15 years
i= 8.25%
PV= ?
Using PVAF
PV= Pmt [ ( 1 - ( 1 + i )-n ) / i ]
PV= 500 [(1-(1 + 0.0825)-15)/ 0.0825]
PV= $4,215.18

32. Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is 8%.
What is the value of this perpetuity?

Cash Flow ( C )= 1,000

r= 8%
PV = ?
Using: PV for a perpetuity = cash flow/discount rate
PV= C/r
1,000 /
PV= 0.08
PV= $12,500
33. Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is 10%.
What is the value of this perpetuity?

Cash Flow ( C )= 1,000

r= 10%
PV = ?
Using: PV for a perpetuity = cash flow/discount rate
PV= C/r
1,000 /
PV= 0.1
PV= $10,000

34. Suppose you can save $200 per year at the end of each year for 15 years and earn 7.49%
interest per year. However, you cannot start saving for five years. What is the present value
of this annuity?

35. What are the annual payments for a 4-year $4,000 loan if the interest rate is 9% per year?
Make up a loan amortization schedule.

36. You are planning to take a car, its cash price is Rs.800,000. Bank is offering seven year
monthly payment plan at 18%. How much monthly installment will be offered by bank?

37. Suppose you are accepting bank offer as given in Q No.43 but want to amortize whole loan
in five years. What monthly installment will be offered by bank?

38. Suppose you are planning to accept bank offer as given in Q No.43 but instead of monthly
payment plan, you are interested in quarterly installment. Compute theamount you will pay
after each quarter.

39. Suppose you are planning to take this car through bank loan but you already have saving of
Rs.150,000 which you paid to bank as down payment and rest you are agree on monthly
installment at 18%. Compute monthly payment.

40. Consider the following future value problem. The respective cash flows for t = 0, 1, 2, and 3
are $3,000, $2,000, $8,000, and $5,000 and the discount rate is ten percent. What is the
future value at t = 4?
41. You are offered a signing bonus of $2,000,000 or a future payment of $2,500,000 at the end
of three years from now. If you can earn 7% on invested funds, would you take the signing
bonus or wait for the future payment?