Time Value of Money

Topics: Compound interest, Time value of money, Interest Pages: 37 (3915 words) Published: February 25, 2014
Time Value of Money Problems
1. What will a deposit of $4,500 at 10% compounded semiannually be worth if left in the bank for six years?
a. $8,020.22
b. $7,959.55
c. $8,081.55
d. $8,181.55

2. What will a deposit of $4,500 at 7% annual interest be worth if left in the bank for nine years? a. $8,273.25
b. $8,385.78
c. $8,279.23
d. $7,723.25

3. What will a deposit of $4,500 at 12% compounded monthly be worth at the end of 10 years? a. $14,351.80
b. $14,851.80
c. $13,997.40
d. $14,304.80

4. How much will $1,000 deposited in a savings account earning an annual interest rate of 6 percent be worth at the end of 5 years?
a. $1,338
b. $1,348
c. $1,388
d. $1,438

5. How much will $1,000 deposited in a savings account earning a compound annual interest rate of 6 percent be worth at the end of 3 years?
a. $1,199
b. $1,191
c. $1,891
d. $1,389

6. Given an annual opportunity cost of 10%, what is the future value of a $1,000 ordinary annuity for 1 year?
a. $1,200
b. $1,120
c. $1,100
d. $1,210

7. Given an annual opportunity cost of 10%, what is the future value of a $1,000 ordinary annuity for 10 years?
a. $15,937
b. $15,739
c. $10,000
d. $12,000

8. If you require a 9 percent annual return on your investments, you would prefer $15,000 five years from today rather than an ordinary annuity of $1,000 per year for 15 years. a. True
b. False

9. How long does it take for $5,000 to grow into $6,724.44 at 10% compounded quarterly? a. 2 years.
b. 3 years.
c. 4 years.
d. 30 months.

10. How long does it take for $856 to grow into $1,122 at an annual interest rate of 7%? a. 2 years.
b. 6 years.
c. 4 years.
d. 30 months.

11. How much will an ordinary annuity of $650 per year be worth in eight years at an annual interest rate of 6 percent?
a. $8,975.38
b. $6,897.76
c. $7,021.80
d. $6,433.38

12. How much will an ordinary annuity of $650 per year be worth in eight years at an annual interest rate of 8 percent?
a. $4,800.27
b. $6,366.10
c. $6,913.79
d. $6,822.79

13. How much must you deposit at the end of each year in an account that pays an annual interest rate of 20 percent, if at the end of 5 years you want $10,000 in the account? a. $1,500
b. $1,250.66
c. $1,393.47
d. $1,343.72

14. The Wintergreens are planning ahead for their son's education. He's eight now and will start college in 10 years. How much will they have to set aside at the end of each year to have $65,000 in 10 years if the annual interest rate is 7%?

a. $4,704.55
b. $4,500
c. $3,975.89
d. $4,624.55

15. What annual interest rate would you need in order to have an ordinary annuity of $7,500 per year accumulate to $279,600 in 15 years?
a. 8.75%
b. 10.2%
c. 12%
d. 14%

16. What annual interest rate is implied if you lend someone $1,850 and are repaid $2,078.66 in two years?
a. 4%
b. 5%
c. 6%
d. 5.5%

17. What nominal annual interest rate is implied if you borrow $12,500 and repay $21,364.24 in three years with monthly compounding?
a. 12%
b. 15%
c. 17%
d. 18%

18. You have $10,000 to invest. Assuming annual compounding, how long will it take for the $10,000 to double if it is invested at an annual interest rate of 14 percent? a. 6 years.
b. 4.5 years.
c. 5.29 years.
d. 6.14 years.

19. The Tried and True Corporation had earnings of $0.20 per share in 1978. By 1995, a period of 17 years, its earnings had grown to $1.01 per share. What was the compound annual rate of growth in the company's earnings?

a. 11%
b. 10%
c. 12%
d. 11.5%

20. What is the present value of $800 to be received at the end of 8 years, assuming an interest rate of 20 percent, quarterly compounding?
a. $165.00
b. $172.39
c. $167.89
d. $169.89

21. What is the present value of $800 to be received at the end of 8 years, assuming an annual interest rate of 8 percent?
a. $425
b. $432
c. $441
d. $437

22. What would you pay for an ordinary annuity of $2,000 paid every six months for 12 years if you...
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