Time Value of Money Problems
1.
If a father wants to have $100,000 to send a child to college, how much must he
invest annually for 18 years if he earns 9% on his funds?
N: 18
PV: 0
FV: 100,000
I: 9%
Solve for PMT = $2,421.22
2.
Year
Return
1998
$50
1999
$60
2000
$75
What are the yearly returns from this investment?
What is the compounded annual return
from 1998 to 2000?
19989 return: 6050/50 = 20%
2 year annually compounded return”
PV: 50
FV: 75
N: 2
PMT: 0
Solve for I = 22.5%
3. A saver places $1,000 in a certificate of deposit that matures after 10 years and pays
7% interest, which is compounded annually until the certificate matures.
How much
interest will the saver earn if the interest is left to accumulate?
N: 10
PV: 1,000
PMT: 0
I: 7%
Solve for FV: 1,967
4.
A selfemployed person deposits $1,500 annually in a retirement account that earns
8%.
How much will be in the account when the individual retires at age 65 if the savings
program starts when the person is age 45?
How much additional money will be in the
account if the saver defers retirement until age 70?
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 Spring '08
 WHITE
 Finance, Time Value Of Money

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