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# TIME VALUE OF MONEY

1) Joe will receive \$175,000 in 50 years. His friends are jealous of him. What is his pot of gold worth today if the alternative investment rate is 14%

2) Sue will receive \$12,000 a year for the next 15 years as a result of her patent. Using a 9% rate , should she be willing to sell her future rights now for \$100,000.

3) Mike has been depositing \$2,500 in a savings account each December starting in 1991. The account earns 5% compounded annually. How much will he have in December 2000. (Assume a deposit is made in December 2000).

4) If you owe \$40,000 - payable at the end of seven years. How much should your creditor be willing to accept immediately if they could earn 12%.

5) Your rich uncle has offered you a choice of one of the three following alternatives
a) \$10,000 now
b) \$2,000 a year for 8 years - equal investments have earned 11%
c) \$24,000 at the end of 8 years - equal investments have earned 11%

6) John started a paper route 1/1/95. Every 3 months , he deposited \$500 in his bank account. The account earns 4% annually but is compounded quarterly. On 12/31/98 , he used the entire balance in his account to invest in a contract that pays 9% annually. How much will he have on 12/31/01?

7) Pete has just invested \$6,250 for his son (age 1). The money will be used for his son's education in 17 years. He calculates that he will need \$50,000 for the first year of college. What rate of return does he need?

8) Jane has just retired after 25 years. Her total pension has an accumulated value of \$180,000. Her life expectancy is 15 more years. Her pension manager believes she can earn 9% on her assets. What will be her yearly income for the next 15 years?

9) You wish to retire in 18 years , at which time , you want to have accumulated enough money to receive an annuity of \$14,000 a year for 20 years of retirement. During the period before retirement , you can 11% annually. after retirement you can earn 8% annually. What annual contributions will allow you to receive \$14,000 annually.

10) If you borrow \$15,618 and are required to pay the loan back in 7 equal annual instalments of \$3,000. What is the interest rate associated with this loan?

11) If you borrow \$17,000 and are required to pay it back in 20 equal annual instalments of \$2,000 ; what is the approximate interest rate associated with the loan.

12) Joe Invests \$50,000 in a project that is expected to yield a return of 8%, compounded semi-annually over the next 5 years. He will then take the proceeds & provide himself with a 10 year annuity. Assuming a 10% annual interest rate, how much will the annuity be?

13) Joe will receive \$19,500 a year for the next 20 years as a payment for a song he has written. If a 10% rate is applied, should he be willing to sell out all future rights now for \$160,000?

#### Solution Summary

PRESENT AND FUTURE VALUE

\$2.19