Time Value of Money Problems
Use the tables in Appendix C of the textbook to solve the following problems.
1. If $2,000 is deposited in a savings account at the end of each year and the account pays
interest of 5% compounded annually, what will be the balance in the account at the end
of 10 years?
2. If you are able to earn an 8% rate of return, what amount would you need to invest to
have $2,000 one year from now?
3. If $500, to be received 4 years from now, is discounted at 12%, what is its present
value?
4. Suppose you have a winning sweepstake ticket and you are given the option of receiving
$500,000 three years from now, or receiving $125,000 now, and $125,000 a year for the
next three years, the first occurring one year from now.
The sponsor of the prize uses a
6% interest rate.
Which option should you select?
Show supporting calculations.
5. How much must you deposit in your savings account today in order to have accumulated
$3,000 for a down payment on a new car 5 years from today?
The savings account
pays interest of 6% compounded annually.
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 Fall '10
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 Time Value Of Money, Interest

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