Time Value of Money
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4-1 If you deposit $10,000 in a bank that pays 10% interest annually, how much will be in your account after 5 years.
4-2 What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?
4-3 Your parents will retire in 18 years. They currently have $250,000 and they think they will need $1 million at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds?
4-4 If you deposit money today in an account that pays 6.5% annual interest, how long will it take to double your money?
4-5 You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $250,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal?
4-6 What is the future value of a 7%, 5-year ordinary annuity that pays $300 each year? If this were an annuity due, what would its future value be?
4-7 An investment will pay $100 at the end of each of next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If the other investments of equal risk earn 8% annually, what is this investment's present value? Its future value?
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Solution Summary
There are seven basic time value of money problems. Each problem is solved by using functions in MS Excel.
Solution Preview
Please refer attached file for better clarity of functions in MS Excel.
4-1
Present Value of deposit=PV=($10,000) Assume cash outflow
Amount of periodic payment=PMT=0
Interest Rate=Rate=10%
Number of periods=NPER=5
Future Value=FV=?
We can use FV function in MS Excel to get this value
Future Value=FV=$16,105.10
4-2
Future Value of deposit=FV=$5,000
Amount of periodic payment=PMT=0
Interest Rate=Rate=7%
Number of periods=NPER=20
Present Value=PV=?
We can use PV function in MS Excel to get this value
Present Value=PV=($1,292.10)
4-3
Present Value of ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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