Practice: Time Value of Money

1. The amount an investor will have in 15 years if $1,000 is invested today at an

annual interest rate of 9% will be closest to:
A. $1,350.
B. $3,518.
C. $3,642.
2. How much must be invested today, at 8% interest, to accumulate enough to
retire a $10,000 debt due seven years from today? The amount that must be
invested today is closest to:
A. $5,835.
B. $6,123.
C. $8,794.

3. An investment is expected to produce the cash flows of $500, $200, and

$800 at the end of the next three years. If the required rate of return is 12%,
the present value of this investment is closest to:
A. $835.
B. $1,175.
C. $1,235.

4. If $10,000 is borrowed at 10% interest to be paid back over ten years, how
much of the second year’s payment is interest (assume annual loan
payments)?
A. $937.26.
B. $954.25.
C. $1,037.26.

5.The primary goal of corporate management should be to:

A. maximize the number of shareholders.
B. maximize the firm's profit.
C. minimize the firm's costs.
D. maximize the shareholders' wealth.

6.Financing for public corporations must flow through financial markets.

True / False
7. When a corporation fails, the maximum that can lost by an investor protected by limited liability is:
A. the amount of the initial investment.
B. the amount of the profit on the investment.
C. the amount necessary to pay the corporation's debts.
D. the amount of the investor's personal wealth.
8.When corporations need to raise funds through stock issues, they rely upon the:
A. primary market.
B. secondary market.
C. over-the-counter market.
D. centralized NASDAQ exchange

9. What is the present value of 5 equal annual payments of $100, the first payment is made today and
the last payment is made at the end of year 4 (or beginning of year 5). The discount rate is 10%.

PV=Payement/r (1-1/(1+r)^5)(1+r)) = 100/10%(1-(1/(1+10%)^5)(1+10%) =417

10. Find the present value of the following income stream: $200 for the first 20 years, $300 in the
21st year and $400 in the 22nd year. The discount rate is 9%. All payments are made at year end.

PV 1st 20syear (1825.75)

PV 22nd year (275.23)
PV 23rd year (366.97

PV = 2467.95

11. you purchased a car for $100,000. You have paid a down payment of $20,000. The reaming will
paid in equal monthly payments over 10 years. The annual interest rate you are charged is 8%.
What is the monthly payment? (Show me the time line and the financial calculator’s inputs).

Interest rate should be 8%/12 years

Schedule
Period PV PMT Interest FV
1 $-80,000.00 $6,400.62 $-6,400.00 $79,999.38
2 $-79,999.38 $6,400.62 $-6,399.95 $79,998.70
3 $-79,998.70 $6,400.62 $-6,399.90 $79,997.97
4 $-79,997.97 $6,400.62 $-6,399.84 $79,997.19
5 $-79,997.19 $6,400.62 $-6,399.77 $79,996.34
6 $-79,996.34 $6,400.62 $-6,399.71 $79,995.42
7 $-79,995.42 $6,400.62 $-6,399.63 $79,994.43
8 $-79,994.43 $6,400.62 $-6,399.55 $79,993.36
9 $-79,993.36 $6,400.62 $-6,399.47 $79,992.20
10 $-79,992.20 $6,400.62 $-6,399.38 $79,990.96
11 $-79,990.96 $6,400.62 $-6,399.28 $79,989.61
12 $-79,989.61 $6,400.62 $-6,399.17 $79,988.15
13 $-79,988.15 $6,400.62 $-6,399.05 $79,986.58
14 $-79,986.58 $6,400.62 $-6,398.93 $79,984.88
15 $-79,984.88 $6,400.62 $-6,398.79 $79,983.05
16 $-79,983.05 $6,400.62 $-6,398.64 $79,981.07
17 $-79,981.07 $6,400.62 $-6,398.49 $79,978.93
18 $-79,978.93 $6,400.62 $-6,398.31 $79,976.62
19 $-79,976.62 $6,400.62 $-6,398.13 $79,974.13
20 $-79,974.13 $6,400.62 $-6,397.93 $79,971.43
21 $-79,971.43 $6,400.62 $-6,397.71 $79,968.52
22 $-79,968.52 $6,400.62 $-6,397.48 $79,965.38
23 $-79,965.38 $6,400.62 $-6,397.23 $79,961.99
24 $-79,961.99 $6,400.62 $-6,396.96 $79,958.32
25 $-79,958.32 $6,400.62 $-6,396.67 $79,954.36
26 $-79,954.36 $6,400.62 $-6,396.35 $79,950.09
27 $-79,950.09 $6,400.62 $-6,396.01 $79,945.47
28 $-79,945.47 $6,400.62 $-6,395.64 $79,940.48
29 $-79,940.48 $6,400.62 $-6,395.24 $79,935.10
30 $-79,935.10 $6,400.62 $-6,394.81 $79,929.28
31 $-79,929.28 $6,400.62 $-6,394.34 $79,923.00
32 $-79,923.00 $6,400.62 $-6,393.84 $79,916.21
33 $-79,916.21 $6,400.62 $-6,393.30 $79,908.89
34 $-79,908.89 $6,400.62 $-6,392.71 $79,900.97
35 $-79,900.97 $6,400.62 $-6,392.08 $79,892.43
36 $-79,892.43 $6,400.62 $-6,391.39 $79,883.20
37 $-79,883.20 $6,400.62 $-6,390.66 $79,873.23
38 $-79,873.23 $6,400.62 $-6,389.86 $79,862.46
39 $-79,862.46 $6,400.62 $-6,389.00 $79,850.84
40 $-79,850.84 $6,400.62 $-6,388.07 $79,838.28
41 $-79,838.28 $6,400.62 $-6,387.06 $79,824.72
42 $-79,824.72 $6,400.62 $-6,385.98 $79,810.07
43 $-79,810.07 $6,400.62 $-6,384.81 $79,794.25
44 $-79,794.25 $6,400.62 $-6,383.54 $79,777.17
45 $-79,777.17 $6,400.62 $-6,382.17 $79,758.72
46 $-79,758.72 $6,400.62 $-6,380.70 $79,738.79
47 $-79,738.79 $6,400.62 $-6,379.10 $79,717.27
48 $-79,717.27 $6,400.62 $-6,377.38 $79,694.03
49 $-79,694.03 $6,400.62 $-6,375.52 $79,668.92
50 $-79,668.92 $6,400.62 $-6,373.51 $79,641.81
51 $-79,641.81 $6,400.62 $-6,371.35 $79,612.53
52 $-79,612.53 $6,400.62 $-6,369.00 $79,580.91
53 $-79,580.91 $6,400.62 $-6,366.47 $79,546.76
54 $-79,546.76 $6,400.62 $-6,363.74 $79,509.88
55 $-79,509.88 $6,400.62 $-6,360.79 $79,470.04
56 $-79,470.04 $6,400.62 $-6,357.60 $79,427.02
57 $-79,427.02 $6,400.62 $-6,354.16 $79,380.56
58 $-79,380.56 $6,400.62 $-6,350.44 $79,330.38
59 $-79,330.38 $6,400.62 $-6,346.43 $79,276.19
60 $-79,276.19 $6,400.62 $-6,342.09 $79,217.66
61 $-79,217.66 $6,400.62 $-6,337.41 $79,154.45
62 $-79,154.45 $6,400.62 $-6,332.36 $79,086.18
63 $-79,086.18 $6,400.62 $-6,326.89 $79,012.45
64 $-79,012.45 $6,400.62 $-6,321.00 $78,932.82
65 $-78,932.82 $6,400.62 $-6,314.63 $78,846.82
66 $-78,846.82 $6,400.62 $-6,307.75 $78,753.94
67 $-78,753.94 $6,400.62 $-6,300.32 $78,653.63
68 $-78,653.63 $6,400.62 $-6,292.29 $78,545.30
69 $-78,545.30 $6,400.62 $-6,283.62 $78,428.30
70 $-78,428.30 $6,400.62 $-6,274.26 $78,301.94
71 $-78,301.94 $6,400.62 $-6,264.16 $78,165.47
72 $-78,165.47 $6,400.62 $-6,253.24 $78,018.08
73 $-78,018.08 $6,400.62 $-6,241.45 $77,858.91
74 $-77,858.91 $6,400.62 $-6,228.71 $77,686.99
75 $-77,686.99 $6,400.62 $-6,214.96 $77,501.33
76 $-77,501.33 $6,400.62 $-6,200.11 $77,300.81
77 $-77,300.81 $6,400.62 $-6,184.06 $77,084.25
78 $-77,084.25 $6,400.62 $-6,166.74 $76,850.37
79 $-76,850.37 $6,400.62 $-6,148.03 $76,597.77
80 $-76,597.77 $6,400.62 $-6,127.82 $76,324.97
81 $-76,324.97 $6,400.62 $-6,106.00 $76,030.34
82 $-76,030.34 $6,400.62 $-6,082.43 $75,712.15
83 $-75,712.15 $6,400.62 $-6,056.97 $75,368.49
84 $-75,368.49 $6,400.62 $-6,029.48 $74,997.35
85 $-74,997.35 $6,400.62 $-5,999.79 $74,596.51
86 $-74,596.51 $6,400.62 $-5,967.72 $74,163.61
87 $-74,163.61 $6,400.62 $-5,933.09 $73,696.07
88 $-73,696.07 $6,400.62 $-5,895.69 $73,191.13
89 $-73,191.13 $6,400.62 $-5,855.29 $72,645.80
90 $-72,645.80 $6,400.62 $-5,811.66 $72,056.84
91 $-72,056.84 $6,400.62 $-5,764.55 $71,420.76
92 $-71,420.76 $6,400.62 $-5,713.66 $70,733.80
93 $-70,733.80 $6,400.62 $-5,658.70 $69,991.88
94 $-69,991.88 $6,400.62 $-5,599.35 $69,190.61
95 $-69,190.61 $6,400.62 $-5,535.25 $68,325.23
96 $-68,325.23 $6,400.62 $-5,466.02 $67,390.63
97 $-67,390.63 $6,400.62 $-5,391.25 $66,381.25
98 $-66,381.25 $6,400.62 $-5,310.50 $65,291.13
99 $-65,291.13 $6,400.62 $-5,223.29 $64,113.79
100 $-64,113.79 $6,400.62 $-5,129.10 $62,842.27
101 $-62,842.27 $6,400.62 $-5,027.38 $61,469.03
102 $-61,469.03 $6,400.62 $-4,917.52 $59,985.93
103 $-59,985.93 $6,400.62 $-4,798.87 $58,384.18
104 $-58,384.18 $6,400.62 $-4,670.73 $56,654.29
105 $-56,654.29 $6,400.62 $-4,532.34 $54,786.01
106 $-54,786.01 $6,400.62 $-4,382.88 $52,768.26
107 $-52,768.26 $6,400.62 $-4,221.46 $50,589.10
108 $-50,589.10 $6,400.62 $-4,047.13 $48,235.60
109 $-48,235.60 $6,400.62 $-3,858.85 $45,693.83
110 $-45,693.83 $6,400.62 $-3,655.51 $42,948.71
111 $-42,948.71 $6,400.62 $-3,435.90 $39,983.98
112 $-39,983.98 $6,400.62 $-3,198.72 $36,782.08
113 $-36,782.08 $6,400.62 $-2,942.57 $33,324.02
114 $-33,324.02 $6,400.62 $-2,665.92 $29,589.32
115 $-29,589.32 $6,400.62 $-2,367.15 $25,555.84
116 $-25,555.84 $6,400.62 $-2,044.47 $21,199.68
117 $-21,199.68 $6,400.62 $-1,695.97 $16,495.03
118 $-16,495.03 $6,400.62 $-1,319.60 $11,414.01
119 $-11,414.01 $6,400.62 $-913.12 $5,926.50
120 $-5,926.50 $6,400.62 $-474.12 $-0.00

12. you purchased a car for $120,000 which will paid in equal monthly payments of $1576.1 over
12 years. The annual interest rate you are charged is 12%. For input 12%/12

a. How much of your second monthly payment will go the repayment of1) principal. 2)
interest (use an amortization schedule or table).

Period PV PMT Interest FV

2 $135,976.10 $1,576.10 $16,317.13 $-153,869.33

Principal = 14741.03