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Assessing the time value of money

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1. How much should Elton John invest at the end of each year for six years if he expects to earn 6% and he wants to accumulate $150,000 in order to buy a new grand piano six years from today?

2. How much must Elton John invest today if he expects to earn 6% compounded semiannually and he wants to accumulate $150,000 in order to buy a new grand piano six years from today?

3. How much should Elton John invest today if he expects to earn 6% and he wants to accumulate $150,000 in order to buy a new grand piano six years from today?

4. Michael is depositing $4,095 at the end of each year in a fund that earns 10%. How many years will be required for the balance in the fund to become $25,000?

5. Elizabeth is investing $300,000 in a fund that earns 6% interest compounded annually. What equal amount can Elizabeth withdraw at the end of each of the next ten years?

6. Elizabeth Taylor will receive a lump sum of $300,000 five years from now from a trust fund established by a former husband. Assume that the appropriate interest rate for discounting is 8 percent, compounded quarterly. What is the present value today of the future distribution?

7. XYZ Corporation issues $1,000,000 of 9% bonds due in 20 years. Interest is payable at the end of each year. The current market rate of interest for bonds of similar risk is 8%. What amount will XYZ Corporation receive when the bonds are issued?

8. Demetrius is a senior in high school He inherited $8,000 from his grandmother. Demetrius plans to save the inheritance with the hope that it will grow and provide enough money for him to buy a new car when he graduates from college. If he deposits the funds in the bank in an account that will earn 8%, how much money should Demetrius have in five years?

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Solution Summary

Solutions to given problems depict the steps to calculate the present value, future value, time period and rate as per the cases given. Calculations are carried out with the suitable built in functions in MS Excel.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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