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# 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?

#### 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 ...

#### Solution Summary

There are seven basic time value of money problems. Each problem is solved by using functions in MS Excel.

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