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# Finance Questions: Time Value of Money

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Application # 28
You're trying to save up for a long and expensive vacation. You want to take a trip to Europe when you graduate in three years. Considering how much more expensive is the Euro (?) to the U.S. Dollar (\$), and if you can earn 15% on your investments, how much would you have to deposit in order to have \$30,000 when you graduate?

Application # 29
Would you rather have \$500 now or \$1,000 ten years from now? You can earn 6% on any investments. Please justify your answer

Application # 30
You can buy a mortgage from a mortgage broker. Mortgage payments are \$35,000 per year and there are 15 years to maturity. The broker is asking \$350,000 for the note. You already hold similar mortgages and they yield 12%. Should you buy this note?

#### Solution Preview

Application # 28

We are given the future value and we have to find the present value which would grow to future value in 3 years. Use the compound interest formula
PV = FV/(1+rate)^n
Here
FV = \$30,000
Rate = 15%
n = 3 years
Amount to deposit now PV = ...

#### Solution Summary

This solution provides a detailed, step by step calculation of the given problem.

\$2.19