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Lessons-TVM-71-Problems-1

# Lessons-TVM-71-Problems-1 - FINC 2400 3610 3700 Fall 2011...

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FINC 2400 / 3610 / 3700 Fall 2011 PROBLEMS IN CASH FLOW DISCOUNTING AND FINANCIAL CALCULATOR USE PART I: 3610 CHAPTERS 5 6 Modified: 9/7/2011 Generated: 9/7/2011

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2 I: SIMPLE LOANS / SIMPLE INTEREST [L101-104] Solve the following simple loan problems mathematically, assuming simple interest. A [FV] You put \$2,600 in the bank today. After 7 years, earning 9% interest, how much is in your account? You loan \$250 to an acquaintance at 10% interest. After 3 years, how much does he owe you? You invest \$100,000 in a shady deal that promises a 24% return. After 5 years, it actually pays off as promised. How much money do you receive? B [PV] Your uncle leaves you his bank account which as been earning 3% interest for 25 years. The account currently contains \$45,678. How much did your uncle deposit 25 years ago? You can earn 12% interest on a financial investment. You want to save up \$20,000 for your daughter’s college education, which she is due to start in 10 years. How much would you need to invest today to reach your goal? Your friend pays you back \$1,000 after borrowing money from you two years ago at 24% interest. How much did he borrow? C [N] Your dear departed uncle leaves you \$36,000. His money has been earning 3% interest. You discover that he originally deposited \$20,000. How many years ago was that? Your friend borrows \$500 from you at 10%. He eventually pays you back \$700. How long did it take him to pay you back? You have \$1,000 to invest. You can earn a return of 12%. You want to grow your money to \$2,500. How long do you have to keep your money invested? D [i] You deposit \$10,000 in an interest-bearing account. After 7 years the account balance has grown to \$16,500. What interest rate are you getting? You borrow \$100,000 for 12 years. You end up owing a total of \$1,000,000. What yearly interest rate are you being charged? You leave \$100,000 in the bank. 50 years later your grandchild inherits the account, which at that point contains \$1,000,000. What interest rate did it earn?
3 II: SIMPLE LOANS / COMPOUND INTEREST [L111-114] Solve the following simple loan problems mathematically, assuming compound interest. A [FV] You put \$2,600 in the bank today. After 7 years, earning 9% interest, how much is in your account? You loan \$250 to an acquaintance at 10% interest. After 3 years, how much does he owe you? You invest \$100,000 in a shady deal that promises a 24% return. After 5 years, it actually pays off as promised. How much money do you receive? B [PV] Your uncle leaves you his bank account which as been earning 3% interest for 25 years. The account currently contains \$45,678. How much did your uncle deposit 25 years ago? You can earn 12% interest on a financial investment. You want to save up \$20,000 for your daughter’s college education, which she is due to start in 10 years. How much would you need to invest today to reach your goal? Your friend pays you back \$1,000 after borrowing money from you two years ago at 24% interest. How much did he borrow?

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