ACCT 3001, Intermediate 1
Class Problems
Chapter 06 – Time Value of Money
1)
If you invest $10,000 today at 8% compounded annually, how much will you have in 3
years?
What if it is compounded semi-annually?
2)
If you want $20,000 in 4 years and can invest in a fund that earns 12% compounded
annually, how much must you invest today?
What if the 12% is compounded quarterly?
3)
If you have $29,729 today and want $220,000 at the end of 21 years, what annual interest
rate must you earn?
4)
If you invest $10,000 today in a fund that earns 5% annual interest, how many years will it
take for the fund to grow to $13,400?
5)
If you want $200,000 in 10 years, how much must you invest at the end of each year, at
11%, to accomplish your goal?
6)
If you want to retire at age 65, and you believe you need $1,000,000 on which to retire, how
much will you need to invest at 10% annually (after tax) if you begin saving at (a) age 25,
(b) age 30, and (c) age 40?
(Note:
your answer will tell you why you should start saving for
retirement as soon as possible!)
7)
George and Gracie have brand-new twins.
They decide they can afford to put $2,400 per
year aside for the twins’ college education beginning in one year.
If the twins go to college
when they are 18, how much will the College Fund have accumulated if it earns 8%?
8)
See problem 7 above.
What if George and Gracie can only put aside $2,000 per year but the
College Fund earns 12%?
9)
Recompute your answers to 7 and 8 above assuming that George and Gracie do not begin
putting money into the college fund until the twins are age 3.