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TIME VALUE OF MONEY

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

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

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

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

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?

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%.

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)

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)

9. What is the value of $2000 after 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)

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

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

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%?

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?

14. 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?

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

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

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17. 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?

18. 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?

19. Sales of current year is 75,000 and sales of a company after four years is $375,000. What
is the rate of growth?

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

21. Consider an APR of 13.5% with quarterly compounding. What is the EAR (
effective annual rate)?

22. Consider an EAR of 13.75% with quarterly compounding. What is the APR (
annual percentage rate)?

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

24. 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?

25. 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?

26. Suppose you save $4,000 per year at the beginning of each year for 3 years and earn
5% interest per year. How much will you have at the end of 3 years? Compare this
answer with question no. 24 and give comments.

27. Suppose you save $4,000 per year at the beginning of each year for 10 years and earn
8.5% interest per year. How much will you have at the end of 10 years? Compare this
answer with question no. 25 and give comments.

28. 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.

29. 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.

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30. 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?

31. 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?

32. 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?

33. 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?

34. Suppose you save $2,000 per year at the beginning of each year for 15 years and earn
7.49% interest per year. How much will you have at the end of 15 years?

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

36. Suppose you save $1,000 per year at the beginning of each year for 3 years and earn 5%
interest per year. What is the present value of this annuity

37. 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 present value of this annuity?

38. Suppose you can save $100 per year at the end of each year for 10 years and earn 5.45%
interest per year. However, you cannot start saving for four years. How much will you
have at the end of 14 years?

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

40. Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is
10%. What is the value of this perpetuity?

41. 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?

42. 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.

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43. 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?

44. 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?

45. 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 the
amount you will pay after each quarter.

46. 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.

47. Repeat Q No.43 to Q No.46 assuming bank is following annuity due condition.

48. 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?

49. 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?

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