TVM Exercises

1. An analyst expects a firm’s earnings per share to grow at 8 percent a year. If the
firm now earns $3.50 a share, its earnings per share five year from now are
expected to be?
2. What is the value in five years of $100 invested today at an interest rate of 8
percent per year, compounded quarterly?
3. Doris Green has $800,000 in her pension plan and wants to receive equal year-end
payments for the next 15 years before exhausting her pension. If Doris continues
to earn 9 percent on her pension, the yearly amount the pension plan will pay her
will be?
4. An individual deposit $10,000 at the beginning of each of the next 10 years,
starting today, into an account paying 9 percent interest compounded annually.
The amount of money in the account at the end of 10 years will be?
5. An individual deposits $1,500 today and $1,500 one year from now into an
interest earning account. The deposits earn 12 percent compounded annually. The
total amount in the account two years from today is?
6. At an 8 percent rate of return, approximately how much must an investor have in
her investment account on her 65th birthday in order that she can withdraw
$30.000 on that birthday and on each of the next 19 birthday?
7. The amount an investor will have in 15 years if $1,000 is invested today at an
annual interest rate of 9 percent will be?
8. Fifty years ago, an investor bought a share of stock for $10. the stock has paid no
dividend during this period, yet it has yielded 20 percent, compounded annually,
over the past 5 years. If this is true, the investment’s worth is now?
9. How much must be invested today at 0 percent to have $100 in three years?
10. How much must be invested today at 8 percent interest to accumulate enough to
retire a $10,000 debt due 7 years from today?
11. An analyst estimate that XYZ’s earnings will grow from $3.00 a share to $4.50
per share over the next 8 years. The rate of growth in XYZ’s earnings is?
12. If $5,000 is invested in a mutual fund offering a rate of return 12 percent per year,
approximately how many years will it take for the investment to reach $10,000?
13. 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 percent, the
present value of this investment is?
14. Given an 8.5 percent discount rate, an asset that generate cash flows of $10 in
year one, -$20 in year two, $10 in year three, and then sold for $150 at the end of
year four has present value of?
15. An investor just won the lottery and will receive $50,000 a year at the end of the
next 20 years. At a 10 percent interest rate, the present value of the winnings is?
16. If $10,000 is invested today in an account that earns interest at a rate of 9.5
percent, what is the value of the equal withdrawal that can be taken out of the
account at the end of each of the next 5 years if the investor plans to deplete the
account at the end of the time period?
17. An investor is to receive a 15-year annuity of $2,000, the first payment to be
received today. At an 11 percent discount rate, this annuity’s worth today is?

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 18. Given an 11 percent rate of return, the amount that must be put into an investment
account at the end of each of the next ten years in order to accumulate $60,000 to
pay for a child’s education is?
19. An investor will receive an annuity of $4,000 a year for 10 years. The first
payment is to be received 5 years from today. At a 9 percent discount rate, this
annuity’s worth today is?
20. If $1,000 is invested today and $1,000 is invested at the beginning of each of the
next 3 years at 12 percent interest (compounded annually), the amount an investor
will have at the end of the fourth year will be?
21. An investor is looking at a $150,000 home. If 29 percent must be paid down and
the balance is financed at 9 percent over the next 30 years, what is the monthly
mortgage payment?
22. Given daily compounding, the growth of $5,000 invested for one year at 12
percent interest will be?
23. If $10,000 is borrowed at 10 percent interest to be paid back over 10 years, how
much of the second year’s payment is interest (assume annual loan payment?
24. What is the effective annual rate for credit card that charges 18 percent
compounded monthly?

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