© Mikhail Pevzner and George Mason University
Practice problems for present value and bonds:
Problem 1:
You would like to invest $1,000 into a checking account. The market rate of interest is
9% per year. How much will be in your checking account in the end of 20 years?
Answer:
1,000*(1+0.09)
20
=$
5,604.41
Problem 2:
You would like to contribute $1000
semiannually
into your savings account. The market
rate of interest is 6%
per year.
How much will be in your savings account in 10 years?
Answer:
1,000*FV
ORDINARY ANNUITY
(20,3%)=1,000*26.8704=$26,870.4
Problem 3:
Your friend is asking you for a loan. He says he will pay you back $10,000 in 3 years.
Assuming annual market interest rate of 5%, how much cash should you give him today?
Answer:
10,000*PV(5%,3)=$10,000*0.8638=$8,638
Problem 4:
You have a car loan in which you pay $300
per month
in the end of each month for your
new Toyota over the next five years. Assuming that car dealer charged you minimal
competitive price, what was the value of Toyota in the time of sale? Assume market interest
rate of 6%
per year
.
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 Fall '09
 Hasan
 Financial Accounting, Decision Making, Time Value Of Money, Interest, Mikhail Pevzner

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