Time Value Analysis
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1. If you deposit money today into an account that pays 6.5 percent interest, how long will it take for you to double your money?
2. John Roberts has $42,180.53 in a brokerage account, and he plans to contribute an additional $5,000 to the account at the end of every year. The brokerage account has an expected annual return of 12 percent. If John's goal is to accumulate $250,000 in the account, how many years will it take for John to reach his goal?
3. What is the future value of a 5-year ordinary annuity that promises to pay you $300 each year? The rate of interest is 7 percent.
4. What is the future value of a 5-year annuity due that promises to pay you $300 each year? Assume that all payments are reinvested at 7 percent a year, until Year 5.
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Solution Summary
This solution is comprised of a detailed explanation and calculation to answer the time value of money problems.
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Time Value Analysis
1. If you deposit money today into an account that pays 6.5 percent interest, how long will it take for you to double your money?
FV = PV (1+i)n where PV is the present value
i is the interest rate
n is the period
2 = 1 (1.065)n
2 = (1.065)n
n LN(1.065) = LN(2)
n(0.063) = 0.69
n = 11.01
2. John Roberts has $42,180.53 in a brokerage account, and he plans to contribute an additional $5,000 to the account at the end of every year. The brokerage account has ...
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