# Time Value of Money

Give appropriate solutions to the attached email.

1. How long will it take $10,000 to reach $50,000 if it earns 10% interest compounded semiannually?

a.) 17 years

b.) 33 years

c.) 16.5 years

d.) 8.5 years

2. You require an 8% annual return on all investments. You will receive $1,000,

$2,000, and $3,000 respectively for the next three years (end of year) on a particular investment. What is the most you be willing to pay for this investment?

a.) $5,022

b.) $2,577

c.) $6,000

d.) $4,763

3. Your partners have promised to give you $25,000 on your wedding day if you

Wait 10 years to get married. Your sister is getting married today. What amount should she receive in today's dollars to match you gift? The appropriate discount rate is rate 12%.

a.) $8,049

b.) $10,000

c.) $22,321

d.) $25,000

4. You want to start saving for retirement. If you deposit$2,000 each year at the end

Of the next 60 years and earn 11% on the investment, how much will you have when you retire?

a.) $792,000

b.) $1,048,114

c.) $9,510,132

d.) $10,556,246

5. What is the present value of a semi-annual ordinary annuity payment of $7,000

made for 12 years with a required annual return of 5%?

a.) $65,145

b.) $128,325

c.) $125,195

d.) $62,043

6. You get a 25-year loan of $150,000 with a 8% annual interest rate. What are the

annual payments?

a.) $14,052

b.) $2,052

c.) $13,965

d.) $13,427

7. Your grandmother is offered a series of $6,000 starting one year from today. The

Payments will be made at the end of each of the next 10 years. Similar risk investments are yielding 7%. What should she pay for the investment?

a.) $60,000

b.) $45,091

c.) $42,141

d.) $30,501

8. Company XYZ purchased some machinery and gave a five-year note with a

Maturity value of $20,000. The discount rate is 8% annually and the interest is discounted monthly. How much did the company borrow?

a.) $13,612

b.) $13,424

c.) $19,346

d.) $12,000

9. Your father loans you $12,000 to make it through your senior year. His

Repayment schedule requires payments of $1401.95 at the end of year the next 15 years. What interest rate is he charging you?

a.) 7.0%

b.) 7.5%

c.) 8.0%

d.) 8.5%

10. What is the future value of an annuity due if your required return is 10%, and

Payments are $1,000 for 10 years?

a.) $15,937

b.) $16,145

c.) $17,531

d.) $11,000

11. You deposit $10,000 in a bank and plan to keep it there for five years. The bank

Pay 8% annual interest compounded continuously. Calculate the future value at the end of five years.

a.) $14,693

b.) $15,000

c.) $14,918

d.) $14,500

12. Calculate the present value of $100,000 received in six months. Use an annual

discount rate of 10%. Do not adjust the discount rate to a semi-annual rate. Keep it annual and adjust to the appropriate value.

a.) $95,346

b.) $56,447

c.) $90,909

d.) $100,000

13. You get a twenty-year amortized loan of $100,000 with a 5% annual interest rate.

what are the annual payments?

a.) $8,718

b.) $37,689

c.) $4,762

d.) $8,024

14. What is the present value of $100,000 received in fifteen years with an annual

Discount rate of 5% discounted monthly?

a.) $25,000

b.) $48,102

c.) $47,310

d.) $207,893

15. A gallon of milk cost $3.59 today. How much will it cost you to buy a gallon of

milk for your grandchildren in 35 years if inflation averages 5% per year?

a.) $3.77

b.) $6.28

c.) $12.34

d.) $19.80

16. You borrow $95,000 for 12 years at an annual rate of 12%. What are the monthly

Payments required to amortize this loan?

a.) $1,248

b.) $15,336

c.) $11,400

d.) $3,936

17. As a gift from your parents, you just received $50,000 for your education for the

Next four years. You can earn an annual rate of 8% on your investments. How much can you withdraw each year (end of year) just using up the $50,000?

a.) $12,000

b.) $11,096

c.) $11,750

d.) $15,096

18. You would like to retire on $1,000,000. You plan on a 7% annual investment rate

(3.5% semi-annually) and will put away $7,500twice a year at the end of each semi-annual period. How long before you can retire? Round to the nearest figure.

a.) 51years

b.) 25 years

c.) 35 years

d.) 66 years

19. What is the present value of an annual annuity payment of $7,000 made for 12

Years with a required return of 5% with the first payment starting today?

a.) $3,898

b.) $65,145

c.) $62,043

d.) $11,200

20. What a deal! Your new car only cost $28,300 after rebates and trade. If you

Finance it for 60 months at 6% annual interest, what will be you rmonthly payments?

a.) $471.67

b.) $544.40

c.) $547.12

d.) $1,751.08

Essay. Write your answer in the space provided or on a separate sheet of paper.

21. Sum the present values of the following cashflows to be received at the end of

each of the next six years $1,500, $3,500, $$3,750, $4,250, $5,000 when the discount rate is 4%.

22. How long it will take for $2,500 to become $8,865 if it is deposited and earns 5% per year compounded annually? (Calculate to the closet year.)

23. Company XYZ purchased equipment and gave a three-year note with maturity value of $12,006. The annual discount rate for the note was 14% discounted semi-annually. Calculate how much they borrowed.

24. Calculate the resent value of each of the alternatives below, if the discount rate is 12%.

a.) $45,000 today in one lump sum.

b.) $70,000 paid to you in seven equal payments of $10,000 at the end of each of the next seven years.

c.) $80,000 paid in one lump sum 7 years from now.

25. A bank agrees to give you a loan of $12,000,000 and you have t pay $1,309,908

Per year for 26 years. What is your rate of interest? What would the payments be if this were a monthly payment loan?

#### Solution Preview

The attached excel file has the calculations.

The attached doc file has the answers and explanations.

1. How long will it take $10,000 to reach $50,000 if it earns 10% interest compounded semiannually?

a.) 17 years

b.) 33 years

c.) 16.5 years

d.) 8.5 years

2. You require an 8% annual return on all investments. You will receive $1,000,

$2,000, and $3,000 respectively for the next three years (end of year) on a particular investment. What is the most you be willing to pay for this investment?

a.) $5,022

b.) $2,577

c.) $6,000

d.) $4,763

3. Your partners have promised to give you $25,000 on your wedding day if you

Wait 10 years to get married. Your sister is getting married today. What amount should she receive in today's dollars to match you gift? The appropriate discount rate is rate 12%.

a.) $8,049

b.) $10,000

c.) $22,321

d.) $25,000

The amount should be the PV of your payment. Amount is 25,000/1.12^10 = 8,049

4. You want to start saving for retirement. If you deposit$2,000 each year at the end

Of the next 60 years and earn 11% on the investment, how much will you have when you retire?

a.) $792,000

b.) $1,048,114

c.) $9,510,132

d.) $10,556,246

5. What is the present value of a semi-annual ordinary annuity payment of $7,000

made for 12 years with a required annual return of 5%?

a.) $65,145

b.) $128,325

c.) $125,195

d.) $62,043

6. You get a 25-year loan of $150,000 with a 8% annual interest rate. What are the

annual payments?

a.) $14,052

b.) $2,052

c.) $13,965

d.) $13,427

7. Your grandmother is offered a series of $6,000 starting one year from today. The

Payments will be made at the end of each of the next 10 years. Similar risk investments are yielding 7%. What should ...

#### Solution Summary

The solution explains various multiple choice questions relating to time value of money