Finance: Net Present Value and Rate
Time Value of Money
Exercise
1. If you invest $1000 today at an interest rate of 10% per year, how much will you have 20 years from now, assuming no withdrawals in interim? 2. a. If you invest $100 every year from the next 20 years starting one year from today and you earn interest of 10% per year, how much will you have at the end of the 20 years? b. How much must you invest each year if you want to have $50000 at the end of the 20 years? 3. What is the present value of the following cash flows at an interest rate of 10% per year? (Hints: don’t need to use the financial keys of your calculator, just dome common sense) a. $100 received five years from now b. $100 received 60 years from now c. $100 received each year beginning one year from now and ending 10 years from now d. $100 each year beginning one year from now and continuing forever 4. You want to establish a “wasting” fund, which will provide your with $1000 per year for four years, at which time the fund will be exhausted. How much must you put in the fund now if you can earn 10% interest per year? 5. You take a one-year installment loan of $1000 at an interest rate of 12% per year (1% per month) to be repaid in 12 equal monthly payments. a. What is the monthly payment? b. What is the total amount of interest paid over the 12-month term of the loan? 6. You are taking out a $100000 mortgage loan to be repaid over 25 years in 300 monthly payments. a. If the interest rate is 16% per year, what is the amount of the monthly payment? b. If you can only afford to pay $1000 per month, how large a loan could you take? c. If you can afford to pay $1500 per month and need to borrow $100000, how many months would it take to pay off the mortgage? d. If you can pay $1500 per month, need to borrow $100000, and want a 25-year mortgage, what is the highest interest rate you can pay? 7. In 1626 Peter Minuit purchased Manhattan Island from the
Exercise
1. If you invest $1000 today at an interest rate of 10% per year, how much will you have 20 years from now, assuming no withdrawals in interim? 2. a. If you invest $100 every year from the next 20 years starting one year from today and you earn interest of 10% per year, how much will you have at the end of the 20 years? b. How much must you invest each year if you want to have $50000 at the end of the 20 years? 3. What is the present value of the following cash flows at an interest rate of 10% per year? (Hints: don’t need to use the financial keys of your calculator, just dome common sense) a. $100 received five years from now b. $100 received 60 years from now c. $100 received each year beginning one year from now and ending 10 years from now d. $100 each year beginning one year from now and continuing forever 4. You want to establish a “wasting” fund, which will provide your with $1000 per year for four years, at which time the fund will be exhausted. How much must you put in the fund now if you can earn 10% interest per year? 5. You take a one-year installment loan of $1000 at an interest rate of 12% per year (1% per month) to be repaid in 12 equal monthly payments. a. What is the monthly payment? b. What is the total amount of interest paid over the 12-month term of the loan? 6. You are taking out a $100000 mortgage loan to be repaid over 25 years in 300 monthly payments. a. If the interest rate is 16% per year, what is the amount of the monthly payment? b. If you can only afford to pay $1000 per month, how large a loan could you take? c. If you can afford to pay $1500 per month and need to borrow $100000, how many months would it take to pay off the mortgage? d. If you can pay $1500 per month, need to borrow $100000, and want a 25-year mortgage, what is the highest interest rate you can pay? 7. In 1626 Peter Minuit purchased Manhattan Island from the