Time value of money worksheet # 1 (5.1 to 5.3). BFIN 3321
Use your calculator to complete the following problems. Show your work and highlight your answer.
1. Margot's grandparents gave her $2,500 for her birthday. She opened a savings account that pays 3% annually. How much money will she have in 7 years?
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2. Your parents will retire in 18 years. They currently have $200,000 and they think they will need $1,000,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
3. If you deposit $50,000 in an account that pays 5% annual interest, how long will it take to double your money?
4. Rebecca deposited $300 in an account that pays 6% compounded semiannually. How much money will she have in the account 5 years from now?
5. Jerry has $200,000 in his savings account. How much money did he deposit in the account 10 years ago if he earned 4% compounded monthly?
6. Amanda deposited $20,000 in an account that pays 8% annually. How long will it take her to triple the money if interest is paid every quarter?
Ordinary Annuity vs. Annuity .
7. At the end of each year you deposit $1,200 in a retirement account that pays 6%. How much money will you accumulate for your retirement if you plan to retire 40 years from now?
8. Starting today Andrew will deposit $750 per year in a retirement account that pays 6%. How much money will he accumulate for his retirement if he plans to retire 40 years from now?
9. You are looking into an investment that will pay you $5,000 per year for the next 8 years. If you require a 9% return, what is the most you would pay for this investment?
10. If today you pay $28,000 in exchange for an 8%, 15 year annuity, what will be the annual cash flow?
11. You will buy a house for $150,000. Your mortgage bank will lend you the money at 6% for 15 years. How much will you have to pay every month?
12. An insurance company is trying to sell you an investment policy that will pay you and your heirs $20,000 per year forever. If the required return on the investment is 7%, how much will you pay for the policy?
13. You bought a car for $15,000. You gave the dealer $5,000 as a down payment. The balance will be financed with a 4 year loan with an interest rate of 5%. What will your monthly payment be?
14. Calculate the effective annual rates for each of the following cases:
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Stated Rate (APR)
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Number of Times Compounded
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Effective Rate (EAR)
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7%
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Quarterly
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12%
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Monthly
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6%
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Semiannually
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15. You just bought a house for $150,000. You have agreed to make 5 payments at the end of the year for 5 years with an interest rate of 5%. What will the annual payment be? Create a loan amortization schedule.
16. A first-round draft choice quarterback has been signed to a three-year, $25 million contract. The details provide for an immediate cash bonus of $2 million. The player is to receive $5 million in salary at the end of the first year, $8 million the next, and $10 million at the end of last year. Assuming a 15% discount rate, is the package worth $25 million? If not, how much is it worth?
17. You are evaluating an investment from a large financial services firm. The investment promises an initial payment of $8,000 at the end of this year and subsequent payments that will grow at a rate of 4% annually. If you use a 7% discount rate for investments like this, what is the value of this investment?