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Practice Problems 2

# Practice Problems 2 - Time Value of Money Problems Handout...

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Time Value of Money Problems Handout 2 1. You're trying to save up for a big vacation. You want to take a trip around the world when you graduate in three years. If you can earn 16% on your investments, how much would you have to deposit in order to have \$20,000 when you graduate? 2. Would you rather have \$463 now or \$1000 10 years from now? You can earn 6% on any investments. 3. You can buy a mortgage from a mortgage broker. Mortgage payments are \$30,000 per year and there are 16 years to maturity. The broker is asking \$325,000 for the note. You already hold similar mortgages and they yield 12%. Should you buy this note? 4. At an interest rate of 12% how long would it take a sum of money to double? 5. At 8% how long would it take to triple your money? 6. Your uncle lends you \$1000 today with the promise that you pay him back \$1728 in three years. What rate of interest is he charging you? 7. Your company is required to pay into a sinking fund each year in order to meet an obligation which matures in 10 years. The amount of the obligation is \$100,000 and you can earn 4% on your deposits.

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