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# Multiple Choice Questions on Time Value of Money

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1. Toni adds \$3,000 to her savings on the first day of each year. Tim adds \$3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of thirty years?
\$35,822.73
\$36,803.03
\$38,911.21
\$39,803.04
\$40,115.31

2. The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of \$25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn 6.5% on these funds. How much must the company set aside each year for this purpose?
\$1,775,042.93
\$1,798,346.17
\$1,801,033.67
\$1,852,617.25
\$1,938,018.22

3. The great, great grandparents of one of your classmates sold their factory to the government 104 years ago for \$150,000. If these proceeds had been invested at 6%, how much would this legacy be worth today? Assume annual compounding.
\$ 936,000.00
\$ 1,086,000.00
\$60,467,131.54
\$60,617,131.54
\$64,254,159.44

#### Solution Preview

Note: the abbreviations have the following meanings

FVIF= Future Value Interest Factor
Ordinary Annuity
FVIFA= Future Value Interest Factor for an Annuity
Annuity due
FVIFA (Annuity due)= Future Value Interest Factor for an Annuity due

They can be read from tables or calculated using the following equations
FVIF( n, r%)= =(1+r%)^n

FVIFA( n, r%)= =[(1+r%)^n -1]/r%
FVIFA- Annuity due( n, r%)= =(1+r%) x[(1+r%)^n -1]/r%

Future Value= Lump sum x FVIF
Future Value= Annuity x FVIFA
Annuity = Future Value/FVIFA

1. Toni adds \$3,000 to her savings on the first day of each year. Tim adds \$3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the ...

#### Solution Summary

Answers Multiple Choice Questions on Time Value of Money.

\$2.19