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Unformatted text preview: Practice problems If your deposit $10,000 in a bank account which pays 10% interest annually, how much money will be in your account after 5 years? • 0______1________2________3________4________5 PV 0 = $10,000 FV 5 = ? • i = 10% • Financial Calculator: PV = $10,000 i = 10% n = 5 Compute FV FV = $16,105.10 What is the present value of a security which promises to pay you $5,000 in 20 years? Assume that you can earn 7% if you were to invest in other securities of equal risk? ❧ 0____1____2_____3 . . . . 18____19____20 ❧ PV 0 = ? FV 20 = $5,000 i =10% ❧ Financial Calculator: FV = $5,000 i= 7 n = 20 compute PV PV = $1,292.10 Your parents are planning to retire in 18 years. They currently have $250,000, and they would like to have $1,000,000 when they retire. What annual rate of interest would they have to earn on their $250,000 in order to reach their goal, assuming they save no more money? ❧ 0_____________________________________18 PV =$250,000 FV 18 = $1,000,000 ❧ Financial Calculator: FV = $1,000,000 PV = $250,000 n = 18 compute i i = 8.01% What is the future value of a 5year ordinary annuity which promises to pay you $300 each year? The rate of interest is 7%. ❧ 0________1______2_______3______4______5 300 300 300 300 300 i = 7% FVAN 5 = ? ❧ Financial Calculator: PMT = 300 i = 7 n = 5 PV = 0 compute FV FV = $1,725.22 What is the future value of a 5year annuity due which promises to pay you $300 each year? Assume that all payments are reinvested at 7% a year, until year 5. ❧ 0______1_____2______3______4____5 300 300 300 300 300 i = 7% FVAND 5 = ? ❧ Annuity due because there is a cash flow at time zero ❧ Financial Calculator: PMT = $300 ii = 7 n = 5 PV = 0 FV = ? (remember hit “due” or “beg” button) FV = $1,845.99 An investment pays you $100 at the end of each of the next 3 years. The investment will then pay you $200 at the end of year 4, $300 at the end of year 5, and $500 at the end of year 6. If the rate of interest earned on the investment is 8 percent, what is its present value? What is its future value?...
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 Spring '08
 SNOW
 Financial Accounting, Time Value Of Money, Interest, Mortgage loan

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