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Gsm5400 (May2017) :time Value of Money Exercise
Gsm5400 (May2017) :time Value of Money Exercise
1. You deposit $2,000 in a savings account that pays 10 percent interest, compounded
annually. How much will your account be worth in 15 years?
2. You can earn 15 percent interest, compounded annually. How much must you deposit
today to withdraw $4,000 in 10 years?
3. In 1958 the average tuition for one year at an Ivy League school was $1,800. Thirty
years later, in 1988, the average cost was $13,700. What was the growth rate in tuition
over the 30-year period?
4. Suppose you invested $1,000 in stocks 10 years ago. If your account is now worth
$2,839.42, what rate of return did your stocks earn?
5. What is the future value of a 5-year ordinary annuity with annual payments of
RM200, evaluated at a 15 percent interest rate? Annuity Due?
6. What is the present value of a 10-year ordinary annuity with annual payments of
$2000, evaluated at a 10 percent interest rate?
7. In their meeting with their advisor, Mr. & Mrs. Smith concluded that they would need
RM40,000 per year during their retirement years in order to live comfortably. They
will retire 10 years from now and expect a 20-year retirement period. How much
should Mr. & Mrs. Smith deposit now in a bank account paying 9 percent to reach
financial happiness during retirement?
8. Assume that you will receive RM4,000 a year in Years 1 through 5, RM6,000 a year
in Years 6 through 8, and RM8,000 in Year 9, with all cash flows to be received at the
end of the year. If you require a 15 percent rate of return, what is the present value of
these cash flows?
9. Assume that you will saving RM1,000 a year in Years 1 through 5, RM2,000 a year in
Years 6 through 8, and RM5,000 in Year 9 and, with all cash flows to be received at
the end of the year. If you require a 10 percent rate of return, what is the future value
of these cash flows?)
10. Ahmad has purchased a new car for RM80,000. He paid RM10000as down payment
and he paid the balance by a loan from his hometown bank. The loan is to be paid on
a monthly basis for seven years charging 4 percent interest. How much are the
monthly payments?
11. Your bank offers to lend you $180,000 at an 8.5% annual interest rate to start your
new business. The terms require you to amortize the loan with 10 equal end-of-year
payments. How much interest would you be paying in Year 2? Total principal paid
from Year 1 till 4?