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TVM Review - PROBLEM SET#1 Name Date 1 Fresh out of college...

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PROBLEM SET #1 Name: __________________________ Date: _____________ 1. Fresh out of college, you are negotiating with your prospective new employer. They offer you a signing bonus of $1,000,000 today or a lump sum payment of $1,250,000 three years from now. If you can earn 7% on your invested funds, which of the following is true? A) Take the signing bonus because it has the lower present value. B) Take the signing bonus because it has the higher future value. C) Take the lump sum because it has the higher present value. D) Take the lump sum because it has the lower future value. E) Based on these numbers, you are indifferent between the two. 2. You received a $1 savings account earning 6% on your 1st birthday. How much will you have in the account on your 30th birthday if you don't withdraw any money before then? A) $3.56 B) $4.90 C) $5.42 D) $5.90 E) $6.13 3. What is the future value of $15,000 received today if it is invested at 7.5% compounded annually for five years? A) $15,133.35 B) $17,476.42 C) $21,534.44 D) $24,521.75 E) $28,374.89 4. How much would you have to invest today at 9% compounded annually to have $35,000 available for the purchase of a car five years from now? A) $20,267.26 B) $22,747.60 C) $24,147.25 D) $26,370.10 E) $28,149.57 Page 1
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5. You will receive a $250,000 inheritance in 25 years. You can invest that money today at 8% compounded annually. What is the present value of your inheritance? A) $ 17,491.53 B) $ 29,767.15 C) $ 36,504.48 D) $ 65,492.34 E) $100,000.00 6. You just won the lottery and want to put some money away for your child's college education. College will cost $75,000 in 15 years. You can earn 7% compounded annually. How much do you need to invest today?
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